Giving Trust Beneficiary a debit card can cause a special needs trust to be “available”

Special Needs Trusts are established with the assets belonging to a disabled person, and if they are properly structured and properly administered, the assets won’t be countable as “resources” and the distributions won’t be countable as “income.” This is particularly important when the beneficiary depends on Medicaid, SSI, DDD and other means-tested programs. A recent case illustrates what can really go awry, with serious consequences for the beneficiary.

In Susan Elias v. Colvin, U.S. District Court for the Middle District of Pennsylvania, Civil action. case # 3:15-CV-263 (decided July 27, 2015), the Trustee had given the Beneficiary a bank debit card which enabled the Beneficiary to directly use the Trust account to pay for different things. After 2 years of this, the debit card was destroyed and the beneficiary’s access ended. She was on SSI and pursuant to her divorce agreement, her ex-husband’s pension was being paid into the SNT every month. SSI as you may already know, has a resource limit for eligibility of $2,000 in “countable available resources,”  and an income limit which is the SSI monthly amount.

You might think of the money in the trust, or the money going into the trust from a third party every month (such as alimony or a pension), as “the beneficiary’s assets.”  However, to preserve eligibility, the beneficiary can’t have access to or control over the trust’s assets. The requirements for SNT’s to be excluded from countability are detailed in the SSA POMS (Program Operations Manual System) as well as the state Medicaid manual and regulations. Specifically, the POMS SI 01120.200.D.1.a says that “if the individual can direct use of the trust principle for his her support or maintenance, the trust principle is a resource for SSI purposes.”

In Elias, the SSI benefits were terminated AND she was given a demand for repayment of an overpayment for “benefits wrongfully received.” Under the SSI rules (20 CFR 416.550, 416.551), they can only waive overpayment if the claimant was “without fault.” She had to pursue an appeal to a federal administrative law judge (ALJ), and from there, to Federal District Court for review. The ALJ decided that the trust was a countable resource because she had had direct access to the funds, and that she was not without fault so the overpayment would not be waived. He also decided that the trust had been misused, since the terms of the document would not have allowed the trustee to give the beneficiary a debit card. However, he further decided that the Trust continued to be countable even after the card was destroyed. The District Court agreed with all of the conclusions except this last one, and on this final point, remanded it for further proceedings to see if the Trust was properly administered after April 2011 so that eligibility could be restored as of then.

The lesson is that: Trustees must pay scrupulous attention to the restrictions contained in the Trust rules, in order to protect their beneficiaries.

Call us for preparation, interpretation, defense and court reformation of special needs trusts, and for asset preservation plans that include special needs trusts for disabled persons  under 65… 732-382-6070


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