SSI and Medicaid —
How Special Needs Trust Disbursements & Other Monies Affect Government Benefits
by Gregory P. Hawkins, JD

In most states, including Utah, when a person qualifies for SSI (Supplemental Security Income), they qualify for Medicaid.

SSI is a federal program that pays monthly cash benefits to aged, blind or disabled citizens who have a limited income and limited financial resources. In Utah, SSI pays a monthly stipend of $623.00 ($7,279.50 per year) for an eligible (non-blind) individual in 2007.  An eligible blind individual can receive $1500.00 per month.

Countable resources above a certain limit will disqualify someone for SSI. The limits are $2000.00 for an individual and $3000.00 for a couple.

The following are examples of countable resources:

• Cash.
• Income producing real property.
• Stocks, bonds, investments, etc.
• Life insurance exceeding $1500.00.

 The following non-countable resources generally do not count toward the resource limit, no matter how much they are worth:

• A house used as a primary residence.
• Household goods and personal effects.
• An automobile of any value.
• Life insurance policies less than $1,500.
• Burial plots or spaces for the immediate family.
• Burial fund of up to $1,500.
• Property used in a trade or business, or as part of a job if the person works for someone else.

 A person who is earning more than a certain monthly amount is considered to be engaging in Significant Gainful Activity (SGA). They do not qualify for SSI. The monthly income for a non-blind individual is $900.00 in 2007.  The monthly income for a blind individual is $1500.00.

There are three types of income that adversely affect monthly SSI payments.

Earned Income is defined as gross wages or the gross net from self-employment. Monies earned from a shelter workshop count as earned income. An SSI recipient can work but a portion of their income is deducted from the SSI payment. The formula is fairly straight forward.

• The first $20 of most income received in a month, including other than earned income is not counted.
• Additionally, the first $65 of earnings and one-half of earnings over $65 received in a month are not counted

Example (earned income):
Johnny earns $347 a month in gross wages at his job.

$347 (countable income -- earned wages)
-  20 (not counted income)
$327
-  65 (earned income not counted)
$262 (remaining countable income)
divided by 1/2 = $131 (total countable income)

Johnny would receive:
$623 (SSI Federal benefit rate for 2007)
-131 (total countable income)
$492 (total SSI benefit for the month)

Unearned Income includes most types of money received from investments and other government assistance programs, such as the Social Security benefits, also stock dividends, annuities, child support, royalties, prizes, awards and an inheritance all count as unearned income. The distribution of cash from a Special Needs Trust would count as unearned income.

Unearned income receives the $20 monthly deductible but not the extra deductibles for earned income.

Example (Unearned Income):
Sally does not work but she receives $300 a month from Social Security in addition to SSI.

$300 (Social Security benefit ─ unearned income)
-  20 (not counted)
$280 (countable income)

Sally would receive:
$623 (SSI Federal benefit rate for 2007)
-280 (countable income)
$343 (total SSI benefit for the month)

The way that In-Kind Income affects SSI is a little trickier to determine. The purpose of SSI is to provide funds for food and shelter. If these are provided by a third party (parents, relatives, friends) they are counted as in-kind income. The impact of In-kind income on the SSI payment is generally calculated in two ways.

Presumed Maximum Value Rule (PMV) ─ The Presumed Maximum Value Rule applies when In-kind value is difficult to calculate exactly.

Steven lives with his brother’s family. He pays no rent and eats with the family. Since there is no way to effectively calculate the value of room and board, 1/3 plus $20 is deducted from his SSI payment.

  $623 (monthly SSI payment in 2007)
- $225 (1/3 of the SSI payment, plus $20)
$398 (total SSI benefit for the month)

The One-Third Reduction Rule ─ The One-Third Deduction Rule applies when some standard of value can be calculated.

Bill lives in an apartment owned by his brother and pays $300 in rent. The market value of the apartment is $1250. The actual value Bill receives because of the reduced rent is $950. However, the presumed value is only 1/3 plus $20 of his SSI payment ($205 plus $20).

   $623 (monthly SSI payment in 2007)
- $225 (1/3 of the SSI payment plus $20)
$398 (total SSI benefit for the month)

Fortunately, regardless of the in-kind support and maintenance Steven or Bill receives, the SSI benefit is never reduced more than 1/3 plus $20. Both rules are never applied in the same month. Additionally, other in-kind income is disregarded for the month.

Example: Bill's parents purchase $80 worth of food for him one month. Since SSI has already reduced his payment (using the 1/3 Reduction Rule) no further reduction will be made, even though he received additional in-kind income (food).

[A note of caution regarding all types of income. If Bill’s or Sally’s or Steven’s countable assets go above the $2000 limit, they will lose all SSI and Medicaid benefits.]

The Role of a Special Needs Trust

Since the Special Needs Trust is a legal entity, outside the control of the beneficiary, the trust monies and assets do not count against SSI benefits until they are paid-out either to the beneficiary or for the beneficiary’s benefit. In addition, as noted above, there are a large number of disbursements the trust can make that are “non-countable,” i.e. they are not considered Earned, Unearned or In-Kind Income.

For an extensive list of items and services the SNT can provide without adversely affecting SSI, click here.

©2007 Gregory P. Hawkins