How to Manage a Supplemental Needs Trust in California

A mom smiling with her special needs son, a person for whom she established a supplemental needs trust, and showing something on a tablet.Establishing a supplemental needs trust or special needs trust is essential to preserving the quality of life for beneficiaries. Without these legal instruments, disabled individuals are vulnerable to losing benefit eligibility. However, managing these types of trusts can be complicated without proper help from an attorney. 

Failing to adhere to regulations and laws can do more harm than good and pose a severe threat to a beneficiary’s well-being and quality of life. Find more information about how to manage these trusts below.

What to Know About Managing SNTs

First, individuals should know that special needs trusts and supplemental needs trusts are two different documents. The way you spend money from these trusts is different and are not interchangeable terms. Second, know that both types of trusts are incredibly complicated and should be developed with an attorney who specializes in cases for special needs and disabled persons. 

Undertaking this endeavor can result in severe misunderstandings, miscalculations, and the beneficiary losing benefits. If you require assistance with financial decisions in the best interest of the beneficiary, consider enlisting the help of a CPA in California. A specialized CPA can also act as a private fiduciary.

Read the difference between these two types of trusts.

Supplemental Needs Trusts

Managing a supplemental needs trust warrants an understanding of the benefits programs a beneficiary qualifies for. A trustee must also be aware of how to maintain eligibility. A supplemental needs trust is more flexible than a special needs trust because it is not ‘means-tested,’ so the beneficiary does not have to fall below a specific income limit for eligibility. 

The money in this trust is from third-parties, so distributions are not considered cash as they are for special needs trusts. However, there are programs that offer benefits that supplemental needs trusts qualify for – so long as they follow the requirements of:

    • Social Security Disability Insurance (SSDI)
    • Medicare

Special Needs Trusts

Those who manage a special needs trust should know how the programs impact trusts, and how to make distributions to maximize government benefits to ensure a high quality of life. Money used to pay for necessities is considered cash, such as paying for rent or food. Managing a special needs trust is more restricted as it requires understanding of the following programs:

    • Supplemental Security Income (SSI)
    • Medicaid

SSI eligibility is ‘means-tested,’ and has two primary financial factors that contribute to qualifying for benefits. These are: 

    • Income: A beneficiary must have limited income (and cannot exceed current max dollar amount per month, i.e. $20/month).
    • Assets: A beneficiary must have less than the max threshold in available resources.


Related Articles: What is a California Special Needs Trust?

Direct Cash Payments from Trusts

A significant variable in managing both types of trusts are payment. What about direct cash payments?

Generally, when managing a supplemental needs trust or a special needs trust, trustees should avoid distributing direct cash payments. Providing large cash payments for either type of trust is severely detrimental to the eligibility of benefits.

It’s important to understand how to provide for beneficiaries without making direct cash payments. If you are confused about this process, seek assistance from a CPA specializing in trusts.

Distribution for Food and Shelter 

Another form of distribution is to use funds to purchase things for a beneficiary. Paying for food and shelter is part of managing these trusts. Fortunately, the Social Security Administration acknowledges some provisions as ‘in-kind support and maintenance’ (ISM). 

Typically, ISMs fall under special needs trusts because they are necessities that a trustee can still provide a minimum benefits reduction rate and don’t impact income.

Provisions considered ISM includes things like: 

  • Food
  • Real property taxes
  • Rent
  • Heating fuel
  • Gas
  • Electricity
  • Water
  • Sewage and garbage removal

What Can a Trustee Provide?

The key to managing these specialized trusts is understanding what you can provide that will not impact eligibility.

Supplemental needs trusts use funds from a third-party and are not subject to income thresholds. Once more, offering direct cash payments to cover items is not usually the best option for either type of trust. However, trustees can provide most anything a beneficiary wants or needs. For those managing a special needs trust, below is a shortlist of items that can be provided without impacting benefits. 

  • Clothing
  • A home (in the name of the trust) 
  • Phone
  • Cable
  • Internet
  • A vehicle
  • Car insurance
  • Car maintenance
  • Car gas 
  • Tuition
  • School books
  • Tutoring
  • Travel
  • Entertainment
  • Household furnishings
  • Electronic devices
  • Durable medical equipment
  • Care management
  • Therapy
  • Medication
  • Legal fees
  • Trustee fees

Please note that this not a finite list of items, but a helpful shortlist to reference. If you have inquiries about what can be purchased for a beneficiary, contact an attorney specializing in special needs cases.

Related Article: Special Needs Trusts: Consider These Things

Other Considerations for SNTs

Failing to fully understand these things can result in the beneficiary losing their benefits and is severely detrimental to their quality of life. Other essential aspects of effective supplemental needs trusts and special needs trust management include: 

  • Applying for a tax identification number
  • Titling assets appropriately
  • Maintaining contact with the beneficiary, the representative payee for SSA benefits, and the guardian and/or legal representative
  • Navigating government benefits and how they affect trusts
  • Identifying entitlement benefits
  • Accounting, record keeping, and terminating the trust
  • And more 

Related Articles: Key California Trust Accounting Requirements

Get Help Managing Finances in a Supplemental Needs Trust

Managing a special needs trust is a complicated financial endeavor that requires navigating innumerable laws, regulations, and more. Worst yet, failing to understand all of these aspects of SNT management can have significant consequences on the well-being of the beneficiary as it can disqualify them from receiving benefits. 

Fortunately, with Marcia L. Campbell, you receive expert trust CPA services to ensure the financial health of your disabled loved one is in good hands. If you need help with financial decisions contact us with any questions.

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