Last Updated on May 16, 2023 by Tresi Weeks
When it comes to special needs planning, it is important to take note of Supplemental Security Income (SSI) beneficiaries. Supplemental Security Income (SSI) beneficiaries must comply with very stringent income and asset rules to receive benefits.
One such rule is the resource allowance limit: A single SSI beneficiary may have only $2,000 of countable resources (for a couple, $3,000). Countable resources include items such as cash, bank accounts, stocks, bonds, certificates of deposit, brokerage accounts, land, life insurance, personal property, and a second vehicle. Read on to learn more about the SSI beneficiary and how it will affect a special needs trust or estate planning portfolio.
When an SSI beneficiary finds out that they will receive an inheritance, their first reaction may be to refuse it. But this refusal, also known as a “disclaimer,” might worsen things for the beneficiary. There are, however, other options, as discussed below.
How the Social Security Administration (SSA) Treats Inheritance
The SSA may consider an inheritance an available resource or income to an SSI recipient or applicant. The SSA treats it as income or an available resource in the first month it has a value and can be used. An ‘inheritance’ can be proceeds of life insurance, cash, a right to receive something, or noncash items received due to someone’s death.
If a beneficiary waives the right to receive an inheritance, the SSA treats this as a transfer of assets. It then penalizes the beneficiary for making the transfer by canceling their SSI benefit for a period of up to three years (for transfers made after December 14, 1999). A disclaimer of inheritance may also be a basis for denying SSI and Medicaid benefits.
When confronted with this situation, a common reaction, especially from family members of the beneficiary, is that the SSA will never find out about the disclaimer because the money isn’t passing through the beneficiary’s bank account or being titled to them. Unfortunately, this is incorrect and violates a host of federal regulations.
An SSI beneficiary has a legal duty to inform the SSA whenever they become entitled to an inheritance. They also must let the agency know if they disclaim it. Failure to notify the SSA of these changes can create additional penalties for the beneficiary. It might, in certain circumstances, also result in legal troubles for the beneficiary or family members managing their affairs.
Luckily, an SSI beneficiary doesn’t have to lose the benefit of an unexpected inheritance. Another option, which allows them to benefit from the inheritance, is transferring the funds to a first-party special needs trust or a pooled special needs trust. Once the assets are in the trust and properly managed, the beneficiary will be able to continue to receive SSI benefits. In some cases, an ABLE Account may also be another option.
What Is a First-Party Special Needs Trust?
A first-party special needs trust (SNT) is a trust that a beneficiary, parent, grandparent, legal guardian, or court may set up. Unlike a third-party SNT, it is funded by the assets of the individual with the disability. It is meant for the sole benefit of a disabled person and cannot be funded after that person reaches age 65.
The purpose of a first-party SNT is to allow a person with special needs to benefit from assets like an inheritance, settlement, or significant gift while also allowing them to remain eligible for government benefits such as SSI and Medicaid.
A first-party SNT must be carefully drafted to ensure compliance with various state and federal statutes. It also must contain a Medicaid payback clause that goes into effect upon the passing of the disabled beneficiary.
What Is a Pooled Trust?
A pooled trust is usually established and managed by a nonprofit. Like a first-party SNT, it can be entered into by a beneficiary, parent, grandparent, legal guardian, or court and is funded by assets of the individual with the disability. A subaccount is created for the sole benefit of a person who is disabled and depositing their assets or income.
However, the trustee is not a person or entity of the grantor’s choosing, but rather a predetermined entity that manages the entire pooled trust and all the subaccounts.
A pooled trust does not necessarily have to be funded by age 65. (Note, however, that there may be possible penalties if it is funded after age 65). In addition, depending on the joinder agreement for the pooled trust, there may still be a Medicaid payback provision. In some circumstances, instead of a Medicaid payback provision, the remaining funds may go to the benefit of the charity.
Carefully review pooled trusts and their agreements to ensure they meet the individual’s needs and will not jeopardize their government benefits.
Achieving a Better Life Experience (ABLE Accounts)
Another option that may work for a beneficiary is an ABLE account. This is especially true where the amount being received from an inheritance may not justify the expense of setting up a trust or fees that could be associated with a pooled trust.
An ABLE account allows a disabled individual to put funds away in a tax-deferred account for their benefit. The disabled person is the owner of the account. It may be opened by the beneficiary, parent, guardian, spouse, sibling, grandparent, or representative payee. View our guardianship and alternatives services for more information.
The basic qualifications to have an ABLE account is that a person must have been determined to be disabled before age 26. There are yearly caps as to how much that person (or whomever is contributing) may place in the account, which are generally in line with the annual gift tax exclusion (subject to some exceptions). In 2023, the annual cap is $17,000. Any person may contribute to or deposit funds into the ABLE account.
Being determined “disabled” for purposes of qualifying for an ABLE account presently means one of the following:
- The person is receiving SSI based on blindness or disability that began before age 26;
- A person not receiving SSI due to excess income or resources, but is otherwise eligible for SSI based on blindness or disability that began before age 26;
- The individual receiving disability insurance benefits, childhood disability benefits, or disabled widower’s benefits based on blindness or disability that began before age 26; or
- The person has a disability certification.
There are some other caveats that may affect whether an ABLE account is the right solution for you:
- First, an eligible individual may have only one ABLE account.
- Second, amounts distributed from the account may only benefit of the designated beneficiary and be for qualified disability expenses.
- Third, only the first $100,000 in an ABLE account will be disregarded as a countable resource for SSI. However, Medicaid will not be interrupted, per current SSA guidelines.
- Fourth, a Medicaid payback provision is required for a portion or all of the balance remaining in the ABLE account when the beneficiary passes away.
Every person’s situation is unique, and an ABLE account may or may not be right for you.
Special Needs Planning: Consult With a Professional
Special needs planning, and probate and estate administration with an inheritance can be difficult to navigate on your own. If you or your loved one receives an inheritance, you may have several options to preserve this for your benefit. Refusing it is usually not the best course of action. Instead, invest in speaking with your Weeks Law Firm special needs planner.