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How to Make Distributions to a Special Needs Trust Beneficiary Without Disrupting Their SSI

When serving as the trustee of a special needs trust, it is crucial to be careful when making distributions or purchases for the benefit of the trust beneficiary.

This is particularly true if the beneficiary receives Supplemental Security Income (SSI) because any distribution or expense could potentially violate Social Security’s rules regarding unearned income for SSI recipients. If a distribution runs afoul of these rules, the Social Security Administration will treat the distribution as unearned income on behalf of the beneficiary and reduce the beneficiary’s income dollar-for-dollar after the first $20 of the distribution.

The most common example of a distribution that would be deemed unearned income is when a trustee provides a cash reimbursement to a beneficiary for a purchase the beneficiary made, even if the beneficiary has a receipt. If the trustee reimburses that beneficiary directly, the reimbursement will be considered unearned income and the beneficiary’s SSI will be reduced by the exact amount of the reimbursement.

However, there are ways to make purchases for beneficiaries that will not negatively affect the beneficiary’s SSI benefits.

5 Examples of Proper Disbursements

1. Directly to the Beneficiary — The trustee can distribute the requested goods or services directly to the beneficiary in person. For example, the beneficiary finds a computer that they like at a brick-and-mortar store and gives the trustee the information on the computer; the trustee would then go to the store, buy the computer using trust funds and deliver it directly to the beneficiary.

If the beneficiary and the trustee are close in proximity to each other, this can reduce the cost of shipping that would be applied to the purchase. It allows for the beneficiary to receive the goods more quickly. One potential downside to the beneficiary is the cost of having to compensate a professional trustee for their time purchasing the goods and then personally delivering them directly to the beneficiary.

2. Purchase Services or Goods for the Beneficiary — The trustee can also purchase services or goods with trust funds and have the goods or services delivered directly to the beneficiary. One common example is purchasing furniture or appliances online and having the items shipped directly to the beneficiary’s residence. This can be a very efficient way to handle a beneficiary’s request for an item. However, if the product is something that needs to be tried on, such as a coat, it is possible that the first purchase may not fit the beneficiary and multiple purchasing attempts may be necessary.

3. Reimburse a Third Party — The trustee can also reimburse a third party who pays for a service. For example, a relative might pay for a beneficiary to attend a sporting event, and the trustee could reimburse the relative for the cost of the beneficiary’s ticket. It is important to remember that the beneficiary cannot be reimbursed, only the third party who purchases the item. In such cases involving reimbursing a third party, it is important to have documentation of the cost of the service and the date on which it was provided.

4. Gift Cards or Gift Certificates — The trustee can purchase gift cards or gift certificates for the beneficiary. However, care should be exercised here because gift cards and gift certificates must meet certain legal requirements. For a more in-debt analysis of the problems with purchasing gift cards for a beneficiary, click here to read an article by our partners at the Academy for Special Needs Planners.

5. Trustee Pays Beneficiary’s Credit Card Bill — The trustee can pay a beneficiary’s credit card bills. For more on this option, click here to read a post from our partners at ASNP.

If you have any questions about Special Needs planning, please give us a call at 913-345-2323. We’ll be happy to help.