If you search online about “NC Special Needs Trusts” you’re likely to find some materials about what you can’t pay for. They’re often framed in the negative (“don’t buy this with a special needs trust”). I wanted to give an important example of what can be paid for under the SSI/Medicaid Income and Asset rules. This is the first of several articles explaining the highly complex rules of special needs trust distributions. So, let’s talk about In-Kind Support and Maintenance (or “ISM”). Let’s break it down:
In-kind is referring to “things,” as opposed to cash. So, this would refer to the distribution of things to the SNT beneficiary, or paying for things that go to the SNT beneficiary. Support and Maintenance is referring to the purpose of the “things” being distributed – i.e., they are meant to be exclusively for the support and maintenance of the SNT beneficiary. What this really equates to, and the rules and regulations are very strict on this, is that ISM includes ONLY food and shelter for the SNT beneficiary. That’s it. Nothing more, nothing less. Just food and shelter. And even within that, the rules and regulations will only allow for a specific list of “things” to be considered ISM, including:
That’s it. It’s a rigid list. So why is ISM so important? Because distributions of ISM to a SNT beneficiary have a special impact on SSI benefits – it’s treated differently from cash value distributions.
The benefit of the ISM rule is that you can convey a lot of value to the SNT beneficiary without having a significant reduction in benefits. That’s because the gifting of ISM “stuff” to the SNT beneficiary results in a presumed reduction in benefits of 1/3 of the Federal Benefit Rate of $735/month. So, regardless of the amount you make each month in SSI, it will be reduced by $245 for the month of receipt. However, if your SSI benefit is each to or less than $245 (the 1/3 of FBR), receiving ISM can get you disqualified from benefits. Here are two examples that illustrate these two different rule applications.
Mary receives $600/month in SSI benefits. The trustee of her SNT distributes to her $1,500 in groceries and pays $1,000 for the mortgage (and escrows) for her small single-family home. The total value conveyed to Mary is $2,500, but the total amount that Mary’s benefits will be reduced is only $245. So, Mary receives $2,500 from the trust (indirectly) and will still receive $365 that month in SSI benefits. That amount will reset to $600 the following month.
Tom receives $200/month in SSI benefits. The trustee of his SNT distributes to him $500 in groceries and paid the electric bill for $75. The total amount of ISM conveyed to Tom is $575, but since Tom only makes $200/month (less than the $245 reduction), he’ll be removed from his benefits, both SSI and Medicaid.
ISM is a great set of rules when used properly, but rigid adherence to the rules and careful discretion is needed to prevent an inadvertent removal of benefits from the SNT beneficiary.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.