Putting Assets into a Trust to Avoid Losing SSI Benefits
The assets within trusts that individuals create for themselves are typically considered when determining eligibility for SSI. Conversely, trusts established by others, designating you as a beneficiary, are generally not deemed your assets for SSI eligibility purposes. If you established an irrevocable trust for your benefit before January 1, 2000, it is usually grandfathered, and its assets are often not considered as part of your ownership.
Special needs trusts, commonly referred to as "special needs trusts," are crafted to assist individuals with unique needs. There are three primary types: the first-party trust, the third-party trust, and the pooled trust. While all three designate the person with special needs as the beneficiary, they differ significantly in their structures.
A first-party trust is intended to hold the assets of an SSI beneficiary, but it must be established by the beneficiary's parent or grandparent or by a court, even though the beneficiary's assets fund the trust. During the beneficiary's lifetime, the trust funds are utilized for their benefit. Upon the beneficiary's death, any remaining assets in the trust are used to reimburse the government for their medical care. These trusts are particularly beneficial for SSI beneficiaries who come into substantial amounts of money, allowing them to retain benefits while accessing their funds when necessary.
The third-party special needs trust is commonly utilized by parents and family members to support an individual with special needs. Unlike first-party trusts, third-party trusts can hold various assets belonging to the family member, such as a house, stocks, bonds, and other investments. Similar to first-party trusts, the assets in a third-party trust don't impact an SSI beneficiary's access to benefits, and the funds can be used for supplemental needs beyond government coverage. However, third-party trusts lack the "payback" provision found in first-party trusts. Consequently, upon the beneficiary's death, any remaining funds in the trust can pass to other family members or charitable organizations without the obligation to reimburse the government.
A pooled trust serves as an alternative to the first-party special needs trust. Charities establish these trusts, enabling beneficiaries to pool resources for investment purposes while maintaining separate accounts for each beneficiary's needs. Upon the beneficiary's death, the remaining funds in their account reimburse the government for their care, with a portion also allocated to the non-profit organization managing the trust.
Due to the intricacies involved, it is advisable to have any trust drafted by an experienced attorney well-versed in SSI matters.