When can income in a trust be countable to the beneficiary even when the income is not distributed?
If it’s a self-settled trust (first-party), any portion of the income that could be distributed under any circumstances to the beneficiary will be counted as income, as well as anything actually distributed. If it’s a third party trust that is not an available resource to the beneficiary, it will only be the actual disbursement from the trust to the beneficiary that will count as income to the beneficiary.
What about distributions actually made?
Any distribution from the trust to a “public benefits beneficiary” has to be evaluated under the income rules to determine if it will have an impact on the beneficiary’s benefits. There are four (4) different types of distributions:
1. Cash Distributions
Cash distributions from the trust will always be counted as income. They is usually not a great reason to give cash distributions to beneficiaries because it amounts to a dollar for dollar reduction in their monthly SSI benefit. Retained income can become an available asset if held too long.
2. Distributions that will count as an asset the month following the month of receipt
This will normally take the form of an asset like a second vehicle, second home, or other types of countable assets that would be considered an available resource to the beneficiary’s eligibility if they were to apply for Medicaid or SSI. If it’s countable next month, it’s income this month.
3. Distributions for food and shelter
Distributions for food and shelter are considered “In-Kind Support and Maintenance” or ISM. They are evaluated under a separate ISM income rule (which will be the subject of the next blog post). If it is not food and/or shelter, it is not ISM. Generally speaking, ISM distributions can result in a 1/3 reduction in the beneficiary’s SSI benefit regardless of the amount of the ISM.
4. Distributions that are neither (2) nor (3)
This could be things like clothing, medical services, therapy, entertainment, computer equipment, etc. If it’s not ISM, and it’s not an available asset, it’s not going to count against the beneficiary and it’s not going to supplant the public benefits of the beneficiary.
Medicaid income rules generally piggyback the SSI income rules, but Medicaid is less restrictive (and no more restrictive) than SSI in terms of its income limits.
Look for further info on income and assets in future blog posts.
Author Bio
Paul Yokabitus
Founder & Estate Planning Lawyer
Paul Yokabitus is the founder of Cary Estate Planning, where he helps North Carolina families protect what matters most through wills, trusts, probate, and special needs planning. Known for his “planning, not paperwork” approach, Paul turns complex legal concepts into clear, practical strategies so clients feel informed and confident at every step. He has been recognized as a Business North Carolina Legal Elite attorney and a Super Lawyers Rising Star, and was named to the Triangle Business Journal’s 40 Under 40. A graduate of Campbell University School of Law, Paul lives in the Triangle with his wife, Alix, and their two sons.
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