We’ve moved! We didn’t go far and look forward to seeing you in our new space located at 1255 Crescent Green Drive, Suite 200, Cary, NC 27518

Special Needs Trusts: Distribution and Income Rules

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

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.

LinkedIn | State Bar Association | Avvo | Google