Trusts are very useful estate planning tools that provide a way to save money and other property for a chosen beneficiary. Some trusts have a particular purpose, such as providing future support for a loved one with special needs. Your chosen trustee will hold and manage the property, making that person responsible for seeing that the terms of the trust are fulfilled. Trustees of special needs trusts have unique issues when it comes to trust administration. One of them is the use of prepaid debit cards. This article will discuss the Social Security Administration’s rules regarding the use of these cards in conjunction with special needs trusts.
What is a Special Needs Trust?
A Special Needs Trust is a specific type of trust, the purpose of which is to provide future care for a disabled individual. In the event a caregiver is unable to continue caring for someone with special needs, the special needs trust will then provide the assets required to continue the necessary care. Special Needs Trusts are irrevocable, meaning they cannot be canceled and the assets in the trust are protected from creditors or other judgments. Another benefit of a Special Needs Trust is that it protects the trust funds so they do not count as financial assets for purposes of eligibility for government benefits.
Special Needs Trusts are Subject to Strict Rules
Because special needs trusts are tied to an individual’s eligibility for Social Security disability benefits, they are governed by very strict rules which are established and enforced by the Social Security Administration. In particular, There are limitations on what the assets of a special needs trust can be used for. For example, trust funds from a special needs trust are not to be used for food or housing, medical costs covered by Medicaid, or assets that could be traded for cash.
The Use of Prepaid Debit Cards for Special Needs Trust Beneficiaries
In the distribution of special needs trust funds to beneficiaries, trustees are more frequently using prepaid debit cards that are managed by trust administrators. One of the benefits of using these cards is that they allow trust beneficiaries increased independence and a way to fulfill their needs more quickly and efficiently.
These debit cards are managed online and allow trustees to link the trust funds to checking and other financial accounts. This allows for the easy transfer of funds to beneficiaries for their use. Trustees are also able to monitor card use and block certain purchases that may not comply with the rules established by the Social Security Administration. This is a very useful tool for trust administration. This is a great way to protect beneficiaries and their eligibility for disability benefits. In fact, trust administrators can also set up the debit card to be accepted only at certain authorized merchants.
Social Security Administration Establishes Rules Specific to Debit Car Use
Very recently, the Social Security Administration published new rules governing the use of debit cards, such as True Link. These rules were published as part of the Administration’s Program Operations Manual System (POMS), the internal guidance system referred to by field employees who answer benefits eligibility questions. These new rules are the first to recognize the debit cards as a legitimate method for trustees to manage special needs trust funds.
These rules require that the trust is listed as the account owner and administrator in order to protect the beneficiary from inappropriate disbursements. It is important to remember that if the debit card is used to withdraw cash, those funds will be counted as cash income which can adversely affect eligibility for benefits.
Be Sure to Comply With the “Sole Benefit” Rule
In order for the first-party special needs trust to operate appropriately, the funds must be used for the “sole benefit” of the person with special needs – hence the “sole benefit rule.” Although this might sound simple enough, complying with the rule is not always that simple. Many transactions inherently benefit someone in addition to the primary beneficiary. For instance, if you purchase an appliance to have installed in the home for the benefit of the person with special needs, it would logically benefit anyone who visits the home. A vehicle would also provide a benefit to anyone who might ride in the vehicle along with the person with special needs. If you have further questions about trust administration, let us know.
Join us for a free seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
#estateplanning, #schomerlawgroup, #trustadministration
Latest posts by Scott Schomer, Estate Planning Attorney (see all)
- Understand the Limitations of Social Security and Medi-Cal - May 5, 2019
- Basic Estate Plan Components - May 4, 2019
- Estate Planning and Remarriage - May 3, 2019