Inheritance, SSI, and Choosing a Special Needs Vehicle
Jeremy, 34, has cerebral palsy and receives $943 monthly SSI and Medicaid waiver services. He lives in a rented apartment and has a $1,200 monthly personal care aide paid by the waiver. His grandmother died and left him $150,000 outright, and the executor is ready to distribute. Jeremy wants to buy a $95,000 condominium, keep $20,000 for a vehicle, and save the rest. He has an ABLE account with $8,000. His mother, Karen, is his representative payee and wants to preserve SSI and Medicaid. Jeremy's disability began before age 26. The state has a pooled trust with a 10% administrative fee and a remainder rule that pays the state at death. He has no other savings and no debt.
1. Compare the first-party special needs trust, pooled trust, and ABLE account for Jeremy. Which should be used, and in what order?
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Outright distribution would exceed SSI's $2,000 resource limit and likely terminate SSI and waiver eligibility. A first-party special needs trust is the best vehicle for the bulk. It must be established by Jeremy's parent, grandparent, guardian, or court, funded with his assets, for his sole benefit, and include a Medicaid payback on death.
A pooled trust is an alternative. It can be established by Jeremy or on his behalf, but the 10% fee and state remainder reduce the benefit. It may be useful for small amounts or when no individual trustee is available. An ABLE account can hold only $18,000 per year in contributions in 2024 and $100,000 before it counts as an SSI resource; it cannot absorb $150,000.
The sequence should be: do not accept outright distribution; establish the SNT before or immediately upon receipt; fund the SNT with the inheritance; use the ABLE account for annual contributions and qualified disability expenses. Purchase the condo through the SNT or in Jeremy's name only after checking the SSI home exclusion and in-kind support rules.
2. Karen asks whether Jeremy can keep the condo in his own name and whether the trust can pay his mortgage, utilities, and aide. Explain SSI's in-kind support and maintenance rules.
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SSI excludes a principal residence from resources regardless of value, so Jeremy may be able to own the condo outright if he uses the inheritance to buy it at fair market value. That is not a disqualifying transfer, but it consumes $95,000 and leaves $55,000, still above the $2,000 limit.
The SNT can buy and hold the condo for Jeremy's benefit, but if the trust pays his mortgage, rent, or utilities without charging him, SSI may count the help as in-kind support and maintenance and reduce his check. Better options are for the trust to hold title and lease to Jeremy at fair market rent, or to pay non-shelter expenses such as aide services, medical equipment, transportation, and recreation. Aide payments made directly to the provider are usually not income to Jeremy. ABLE distributions for housing are qualified disability expenses, but counsel should confirm state SSI treatment because shelter-related help is the area most likely to reduce benefits.
3. What remainder provisions and trustee safeguards should the first-party SNT include?
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The first-party SNT must include a Medicaid payback clause, limit distributions to Jeremy's sole benefit, and prohibit distributions to others. The trustee should have discretion to make supplemental, not basic support, distributions. Karen may serve, but a successor or co-trustee reduces risk.
Include accounting, bond, investment, and trust protector provisions. Prohibit cash distributions to Jeremy, define permitted expenses, allow termination if the trust is no longer needed, and provide for remainder to the state for Medicaid paid, then to Jeremy's heirs. A letter of intent should describe his routines, providers, and preferences. The trustee should not use trust funds to pay Karen's expenses or to make gifts to family.