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Wednesday, October 20, 2021

What Can Qualifying Distributions from a Special Needs Trust Be Used For?

For those with disabilities or loved ones with special needs, a special needs trust can be an invaluable legal tool to add to an estate plan. A special needs trust, when properly structured, will provide supplemental benefits to the trust beneficiary with special needs without the assets held in the trust risking disqualification from need-based government benefits such as Medicaid and SSI. Trustees and trust administrators must be very careful in how and when trust distributions are made. Improper distributions can end up jeopardizing the beneficiaries’ continued receipt of government benefits. So, what can qualifying distributions from a special needs trust be used for?

What Can Qualifying Distributions from a Special Needs Trust Be Used For?

A special needs trust is also referred to as a “supplemental needs trust.” This is because proceeds from a special needs trust can be used to supplement those benefits provided by government programs such as Medicaid and SSI. While a special needs trust can supplement the benefits provided by government benefits, the proceeds from the trust cannot be used to cover the same things that are covered by programs such as Medicaid and SSI. Improper distributions can end up counting against the beneficiary for government benefit purposes.

The key is that the special needs trust pay for things that are not covered by government benefits. Some of the common expenses that a special needs trust trustee can cover with trust assets include:

  • Insurance premiums (including, health, life, dental, auto, and more)
  • Medications and medical equipment that is not covered by either Medicare or Medicaid
  • Home renovations for accessibility purposes
  • Entertainment and recreation
  • Clothing
  • Job training and coaching
  • Phone and internet access

Trustees should be wary of covering things such as food and shelter as such payments can lead to a reduction in government benefits. For the most part, special needs trust distributions can be used to pay for things that will improve the beneficiary’s quality of life. Consulting a trust and estates attorney prior to making trust distributions can be a great way to help ensure that trust distributions are properly made for qualifying purposes.

A trustee should avoid giving cash distributions or things that may be converted into cash to a special needs trust beneficiary. Such distributions may impact benefits. Gift cards should also be avoided. It may be okay to give a gift card in the event that the gift card value cannot be transferred to anyone else, but there is still a risk of impacting benefits. If a trustee is using trust proceeds to pay off a credit card used for the beneficiary, the trustee should take care to check that only things that qualify for special needs trust coverage are being paid for and not things such as food or shelter for the beneficiary.

Estate Planning Attorney

Are you a special needs trust trustee? Are you considering establishing a special needs trust? Make sure things are done right to help ensure the special needs beneficiary continues to be eligible for much-needed government benefits. Verras Law can help. Contact Verras Law today.


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