Does a special needs trust affect supplemental security income?

Generally, a special needs trust will not reduce your supplemental security income (SSI) benefits. However, some special needs trusts will allow for SSI benefits to be impacted in some limited circumstances.

A special needs trust is designed to provide some financial help to a disabled beneficiary without disqualifying the beneficiary from receiving government benefits. The trust accomplishes this by limiting distributions to only those that do not provide “support and maintenance,” which means food, shelter, and health care expenses that may be covered by government benefits. By doing this, the trust assets are not considered as countable resources to the beneficiary, and that means that the assets will not count toward the asset or income limits for receiving government benefits, including SSI.

However, some special needs trusts will allow the trustee (the person in charge of the assets) to make distributions that temporarily disqualify the beneficiary from receiving government benefits. This would only be done in special circumstances and when the trustee believed it would be in the best interest of the beneficiary. For example, the trustee might make a large distribution one month to drastically increase the standard of living of the beneficiary. The entire amount of the distribution would then be spent during that same month. That way, the assets do not carry over to the next month and the government benefits return. Thus, in this instance, a special needs trust might reduce SSI, but it would only be done temporarily and to increase the wellbeing of the beneficiary.

The key here is to make sure that the special needs trust is properly drafted and the  language used fits the beneficiary’s circumstances. Some trusts use such narrow, restrictive language that the trustee is not allowed to make a distribution that reduces government benefits under any circumstances, even if that would be in the best interest of the beneficiary. Other trusts use language that is so broad that the trust disqualifies the beneficiary from ever receiving SSI or other government benefits. Typically, you want a special needs trust that avoids both of those extremes.