BASIC STRATEGIES FOR SSI PLANNING

By John J. Campbell, Esq., CELA

Introduction

            The primary goal of disability planning is to preserve eligibility for all available and appropriate governmental benefit programs, including Supplemental Security Income (SSI) and Medicaid. Typically, Medicaid eligibility is the first consideration because the need to ensure adequate medical care is paramount. However, SSI is also an important benefit program that can provide much needed additional income, and sometimes more, to those who qualify.

SSI-101: The Basics

            Supplemental Security Income (SSI) is a financial needs-based public benefit program, which provides income to the elderly, blind or disabled._[2]  SSI is federally funded and governed solely by federal law.  SSI does not pay for medical care.  However, in certain states, individuals who are eligible for SSI will be eligible to have medical benefits through the Medicaid program.  An individual applying for SSI must meet strict income and resource tests to qualify.

            The monthly income limits for SSI are identical to the maximum federal SSI benefit: $579 for an individual and $869 for a married couple._[3]  Generally, any asset that is spent or disposed of by the individual in the same month as it is received is considered “income.”  Income under SSI regulations consists of both earned and unearned income. 

            Earned income consists of wages; and net earnings from self-employment, such as a sheltered workshop.^[4]  Unearned income consists of income from other sources, including support and maintenance furnished in cash or in kind; payments from an annuity, worker’s compensation payments, old-age, survivors and disability insurance payments, unemployment benefits; payments occasioned by the death of another (which would include payments from an inheritance, payments from a life insurance policy, or payments from a wrongful death action); support and alimony payments; and earnings of and additions to the corpus of a non-exempt trust of which the individual is a beneficiary._[5]

            SSI exempts the first $20 per month of unearned income; and the first $65 of earned income and one-half of monthly-earned income over $65._[6]  In some states, SSI beneficiaries will also receive a state benefit in addition to their federal SSI benefit.  These state payments are also exempt, as are certain other types of income enumerated in the regulations._[7]  These income exemptions are often referred to as the “income disregards.” 

            With some exceptions, individuals qualifying for SSI must have nonexempt income below $579.  Earned and unearned income from sources other than SSI, after deducting the income disregards, will offset an individual’s SSI benefit on a dollar-for-dollar basis._[8]  An offset for other income that reduces an individual’s SSI benefit to $0 will render the individual ineligible.

            The regulations also place restrictions on resources.  Resources are assets consisting of cash or other liquid assets that (i) could be converted to cash and (ii) are not spent or disposed of in the month received._[9]  Certain exempt resources, including but not limited to a house, a car, personal property, household goods, a burial space, or pre-need agreement_[10] are not counted.  Non-exempt resources are restricted to a total of no more than $2,000 for individuals and $3,000 for married couples._[11] 

            In thirty-two states and the District of Columbia_[12], individuals who qualify for SSI automatically qualify for Medicaid.  These states are also called “§1634 states.”  In seven other states_[13], the “SSI criteria states,” individuals who qualify for SSI will also qualify for Medicaid, but must file a separate application.  Thus, for individuals living in one of these §1634 or SSI criteria states,_[14] SSI provides not only income to help pay for basic living needs, but also provides the “gateway” to Medicaid benefits to cover the costs of medical care.

            SSI planning involves issues and strategies similar to those used in traditional Medicaid planning.  For instance, both SSI laws and Medicaid laws contain provisions regarding the treatment of transfers without fair consideration_[15] and the use of trusts.  However, certain differences between SSI laws and Medicaid laws result in ramifications unique to SSI that must be considered when planning for SSI eligibility.  This is especially true for disabled individuals living in SSI states.

Transfers Without Fair Consideration

            Individuals often consider making gifts of their excess resources to reduce those resources to eligibility levels.  To prevent the abuse of this strategy, federal laws impose penalty periods for certain transfers without fair consideration during the “look back period” of thirty-six months preceding the filing of the SSI application._[16]  During a resulting penalty period, the individual may not qualify for SSI. 

            To calculate the penalty period for any transfers of resources, the total, uncompensated value of all transfers made during the look back period is divided by the maximum SSI benefit plus any corresponding state payment._[17]  Under Medicaid law, the penalty period is calculated by dividing the uncompensated value of the transfer by the average monthly cost of nursing home care for an individual in the state in which the individual lives._[18] 

            The average monthly costs of nursing home care in every state will substantially exceed the maximum SSI benefit.  Thus, any transfer without fair consideration will usually result in a longer penalty period under SSI law than that which would be calculated under state Medicaid regulations.  However, the SSI transfer provisions, unlike the Medicaid transfer provisions, limit the maximum penalty period to thirty-six months._[19] 

            While transfers of resources are generally penalized under SSI law, the following transfers of resources are exempt and will not incur a penalty period:_[20]

1.       Transfer of the home to a) the transferor’s spouse; b) the transferor’s child who is blind, disabled or under 21 years old; c) the transferor’s sibling who has an equity interest in the home and has resided in the home for 1 year immediately before the transferor becomes institutionalized; or d) a child of the transferor who resided in the transferor’s home for 2 years immediately before the transferor becomes institutionalized and who provide care to the transferor which permitted him to reside at home rather than in an institution or facility;

2.       Resources transferred to a) the transferor’s spouse or to another for the sole benefit of the transferor’s spouse; and b) from the transferor’s spouse to another for the sole benefit of the transferor’s spouse; 

3.       Resources transferred to the transferor's child who is blind or disabled, or to a trust established solely for the benefit of, the transferor's child who is blind or disabled;  

4.       Resources transferred to a trust established solely for the benefit of an individual who has not attained 65 years of age and who is disabled;

5.       Transfers which were a) intended to be made at fair market value or for other valuable consideration; or b) exclusively for a purpose other than to qualify for SSI benefits; or c) where all resources transferred have been returned to the transferor; and

6.       Transfers in cases where the Commissioner determines that denial of benefits would work an undue hardship.        

            These transfer exclusions are essentially the same as those for Medicaid long-term care and Home and Community Based Services (“HCBS”) benefits.  The considerable difference is that Medicaid has a thirty-six month look back period in most states, but can have an indefinite penalty period; while the resulting penalty period under SSI will be longer than the Medicaid transfer penalty can never be longer than thirty-six months.   

Differences in the Treatment of Trusts

Medicaid Special Needs Trusts and Pooled Trusts Under OBRA `93

            The Omnibus Budget Reconciliation Act of 1993 (OBRA `93) established new Medicaid rules for treatment of both revocable and irrevocable trusts created after August 10, 1993.  The general rule is that, in determining an individual's eligibility for Medicaid benefits, trusts "established by such individual" will be included in income or available resources to the extent of any discretion exercisable in favor of the individual or the individual’s spouse.  A trust is "established by such individual" when the individual's assets form all or part of the corpus of a non-testamentary trust settled by the individual, his or her spouse, or a third person with legal authority to act for the individual or the spouse, or who is acting at the direction or request of the individual or the spouse._[21]  In short, a trust created with the Medicaid applicant's funds generally cannot be used to keep the applicant under the income or available resource ceilings for Medicaid eligibility. 

            Two exceptions to this general rule are contained in 42 U.S.C.A. § 1396p(d)(4)(A) and (C), which, respectively, provide for a special needs trust for a disabled individual under age 65, or pooled trust account for a disabled individual regardless of age._[22]  Special needs trusts, established by the individual's parent, grandparent, legal guardian, or by a court, (often called “(d)(4)(A)” or “payback” trusts), and pooled trust accounts established by the individual, the individual's parent, grandparent, legal guardian, or by a court, (often called “(d)(4)(C)” trusts), will be excluded as a resource for purposes of determining Medicaid eligibility.  It is important to note that despite the provisions of §1396p(d)(4)(C), many states impose transfer penalties on transfers to pooled trusts for individuals over age sixty-five. 

            Within the parameters of the statute, OBRA ‘93 has liberalized the use of trusts for individuals with disabilities.  However, OBRA ‘93 does not clarify the standard of distribution for these trusts.  Nevertheless, there is an implied congressional intent that the trusts remain “supplemental” and discretionary.  The Centers for Medicare and Medicaid Services (formerly the Department of Health Care Financing Administration) issued an advisory opinion, defining the standard for distribution to be for discretionary special needs._[23]   

            Finally, the federal statute requires that after the death of the trust beneficiary or after the trust is terminated during the beneficiary’s lifetime, (whichever occurs sooner); the state must be reimbursed from the assets remaining in the trust to the extent of the total medical assistance dollars paid.       

FCIA Special Needs Trusts and Pooled Trusts:

SSI Requirements Under 42 U.S.C. §1382b(e)

             In December of 1999, Congress passed the Foster Care Independence Act (FCIA), containing new anti-fraud provisions applicable to the Supplemental Security Income (SSI) program.  The FCIA enacted all new provisions regarding treatment of trusts for SSI eligibility purposes.  These provisions are contained in 42 U.S.C. §1382b(e).

            The FCIA generally disfavors trusts established by individuals with their own funds and treats the corpus of these trusts as “available resources” to the individual.  The FCIA provides that an individual is determined to have established a trust if any assets of the individual are transferred to the trust.  Trusts created in a will of another, of which the individual is a beneficiary, are not “established by an individual,”_[24] and are therefore exempt from the provisions of the FCIA._[25]   

            Under the FCIA, the corpus of a revocable trust established by the individual is considered an available resource._[26].  In the case of an irrevocable trust established by the individual, that portion of the corpus that could be distributed to or for the benefit of the individual or the individual’s spouse in any circumstance is also considered an available resource._[27]  Further, distributions from the corpus of any of these trusts, other than to or for the benefit of the individual, will incur a transfer penalty._[28]  Actions to foreclose of the ability to make distributions from the corpus of these trusts to or for the benefit of the individual will likewise be subject to transfer penalty calculations._[29] 

            The FCIA specifically exempts OBRA ‘93 special needs trusts and pooled trusts from being considered an available resource and provides that transfers to fund such trusts by an individual under age 65 will not incur a penalty period._[30]  Thus, the FCIA provides that a trust will be exempt from the general rules regarding self-settled trusts if it complies with all of the criteria in 42 U.S.C. §1396p(d)(4)(A) or (C) applicable to OBRA ‘93 trusts for Medicaid.

            However, even a complying (d)(4)(A) or (C) trust might not be recognized as a valid SSI exempt trust if it does not also comply with Social Security Administration (SSA) policies, some of which are not enumerated in the FCIA.  These policies are embodied in the Program Operations Manual System (POMS) at POMS SI 01120.203.  In particular, the trust must comply with all of the following key requirements, as summarized in POMS SI 01120.203.D.1:

1.         The trust will be established with the assets of the beneficiary, who is under age 65;

2.         The beneficiary is disabled as that term is defined in the Social Security Act;

3.         The beneficiary is the sole beneficiary of the trust.  (Further, the trust does not allow any Prohibited Expenses or Payments under POMS SI 01120.203.B.3);

4.         The trust was established by the beneficiary’s parent, grandparent, legal guardian or a court, if the beneficiary is a minor.  If the beneficiary is not a minor, the trust was established by someone who has legal authority to act with regard to the beneficiary’s assets, as required by POMS SI 01120.203.B.1.e, which would mean that the trust must have been established by the beneficiary’s legal guardian or a Court, or by the individual in the case of a pooled trust account;

5.         The Trust provides specific language providing that, upon the death of the beneficiary, the trust must first reimburse the State for medical assistance paid for the beneficiary;

6.         The Trust will be fully funded before beneficiary reaches age 65;

7.         The Trust is irrevocable.  (The Trust must contain a specific provision making the Trust irrevocable; and, in states that still recognize the “doctrine of worthier title,” the Trust must name specific individuals as contingent beneficiaries to receive any remaining trust balance upon the beneficiary’s death_[31] and after repayment to the State for medical assistance benefits paid).

            Failure of the trust to comply with both OBRA ‘93 and with the SSA requirements could result in trust assets being considered an available resource or in transfers to fund the trust being considered a transfer without fair consideration, resulting in a penalty period.

Testamentary Special Needs Trusts

            Friends, relatives or the spouse of an individual with disabilities often want to provide for that individual in their Wills.  However, outright gifts could cause the individual to become ineligible for SSI and Medicaid due to excess resources.  

            Thus, an important estate-planning tool used in SSI and Medicaid planning for a disabled individual is the Special Needs Trust created in a will. This trust is usually called a “Testamentary Supplemental Needs Trust” or a “Testamentary Special Needs Trust.” Testamentary Special Needs Trusts predate the passage of OBRA ’93; and are specifically exempted from the strict requirements for self-settled living trusts found in both OBRA ’93 and in the FICA._[32]

            A Testamentary Special Needs Trust, like the living trust under OBRA, can pay for items that improve the quality of a beneficiary’s life and medical care, without jeopardizing his or her eligibility for means tested benefits programs. This trust can be funded with second-to-die life insurance, in the case of a disabled child; with an annuity, in the case of a disabled spouse; or with any combination of the two, as well as probate assets remaining in the testator’s estate. However if the beneficiary’s own property is added to the existing trust, the transfer of the beneficiary’s property could adversely affect the beneficiary’s eligibility for public benefits.

            Like the OBRA ’93 trust, the Testamentary Special Needs Trust must be irrevocable. The trust must not permit the beneficiary to compel the trustee to make any distributions from the trust.  In addition, trust property used for the beneficiary’s support, rather than to supplement public benefits, will be considered “income” to the beneficiary. 

            The Testamentary Special Needs Trust is created under the terms of a will. The trustee appointed may be the same person appointed as the testator’s personal representative or executor. The testator also may change any terms of the trust or eliminate the trust provisions altogether simply by later executing a new will. 

            The trust does not come into being and is not funded until after the testator’s death. The testator may direct that property remaining in the trust upon the beneficiary’s death be paid to anyone the testator desires.

            Some state Medicaid regulations effectively limit the funding of Testamentary Special Needs Trusts for the benefit of a surviving spouse.  In Colorado, for example, if all of a testamentary devise to a surviving spouse is placed into a Testamentary Special Needs Trust, the surviving spouse will be required to petition the Probate Court for his or her spousal elective share, exempt property and family allowance as provided in the Probate Code.  Failure to do so will be considered a transfer without fair consideration and will trigger a penalty for long-term care and HCBS benefits._[33]   However, any property remaining after distribution of the elective share, exempt property, or family allowance to the surviving spouse may be placed safely into a Testamentary Special Needs Trust for the surviving spouse.

            The restrictions applicable to Testamentary Special Needs Trusts for the benefit of a surviving spouse do not apply to Testamentary Special Needs Trusts for the benefit of a disabled child, friend, grandchild, etc.

Third-Party Special Needs Trusts

            The common law still recognizes that when a person is disabled, his or her loved ones may wish to provide for the person by creating a living Special Needs Trust._[34] This Third-Party Special Needs Trust is intended to supplement the person’s public benefits, yet not jeopardize any other sources of payment, such as SSI or Medicaid, that might already exist.

            The criteria for Third-Party Special Needs Trusts are that:

1.         The grantor must owe no duty of support to the beneficiary;

2.         The trust must be irrevocable;

3.         The trust may not provide for the daily support of the beneficiary (such as food and shelter) without such distributions being considered “income” to the beneficiary;

4.         The beneficiary cannot compel distributions and has no power to amend the trust; and

5.         Money or property of the disabled beneficiary may never be added to or used to fund the trust._[35]

            A Third-Party Special Needs Trust is distinguishable from an OBRA ‘93 Special Needs Trust and is not required to comply with the same OBRA ‘93 and FICA restrictions applicable to self-settled trusts.  Thus, Third-Party Special Needs Trusts remain a valuable planning technique and, in many cases, are preferable to OBRA ‘93 Special Needs Trusts.

Differing Treatments of Income Under SSI and Medicaid

            It is important to understand and adhere to the strictly construed guidelines on distributions from Special Needs Trusts under both the SSI and Medicaid regulations.  Distributions from a Special Needs Trust that provide support to the disabled individual, whether in cash or in kind, will be treated as income to the individual and could disqualify the individual from eligibility. 

            Distributions of cash to the individual will be counted as income on a dollar-for-dollar basis under both SSI and Medicaid regulations and can easily disqualify the individual from both SSI and Medicaid.  Distributions from the trust for the beneficiary’s support, other than direct cash distributions to the beneficiary, (i.e., distributions to third parties to purchase the beneficiary’s food or shelter, including essential utilities, such as gas, electric, water and sewer services) will be treated as in-kind income under both SSI and Medicaid regulations.  However, the value of in-kind income is calculated differently under SSI regulations than under Medicaid regulations.

            Under Medicaid regulations, in-kind income is usually treated the same as cash income and is valued on a dollar-for-dollar basis.  Thus, the trustee must be careful not to make distributions that would count as in-kind income to a Medicaid beneficiary whose eligibility is not due to SSI, as it can result in loss or reduction of benefits just as quickly as will distributions of cash.

            In contrast, SSI regulations provide that the value of in-kind income for support will be determined under either the “one-third reduction rule”_[36] or the “presumed value rule.”_[37]  Whether the trust pays out $5000 or $500 for in-kind income each month, the reduction in the beneficiary’s SSI benefits will be the same because the reduction is based on a set formula that is not necessarily related to the actual value of the in-kind income provided.  However, if the value of in-kind income received by a beneficiary each month is less than the reduction calculated under the one-third reduction rule or the presumed value rule, whichever is applicable, the beneficiary’s benefit will only be reduced by the actual value of the in-kind income received.

            If an individual on SSI is living in another person’s household and receives both food and shelter from that person, the value of in-kind income for support provided to the individual will be computed according to the “one-third reduction rule.”_[38]  However, if the individual lives in his or her own household, or in the household of another person, but does not receive both food and shelter from that other person, the “presumed value rule” applies.  The presumed value rule could result in a slightly larger amount being treated as income to the individual.  However, so long as the beneficiary will still be entitled to a monthly SSI benefit of $1 or more after reduction for in-kind income, the beneficiary will still be considered eligible for SSI.  

            Income (and resources) can also be “deemed” under SSI regulations.  That is, an individual living at home with his or her ineligible spouse or child will be deemed to have access to a portion of the spouse’s or child’s income._[39]  Generally, an individual under age 18 living with his or her family will also be deemed to have access to a portion of his or her ineligible parents’ incomes._[40]  However, for individuals who do not live in the same home as their families, the income of a spouse, child, or parent is not deemed available.  For individuals who have resident alien statue and are eligible for SSI, the income and resources of a sponsor are deemed to the individual, regardless of whether they live in the same household._[41]

209(b) States

            In the 39 SSI states (and the District of Columbia), an individual who qualifies for SSI will also be able to qualify for Medicaid.  However, there are eleven states_[42] that are permitted to use criteria for Medicaid eligibility that are more restrictive than SSI criteria.  These states are commonly referred to as “209(b) states” because the statutory exception which allows these states to employ stricter Medicaid eligibility criteria is contained in §209(b) of the Social Security Act._[43] 

            In 209(b) states, for instance, income limits are usually stricter than in SSI states.  However, an individual can spend down his or her excess income on medical care and be able to qualify for Medicaid._[44]  Rules regarding deemed income can also be stricter in 209(b) states, where a spouse’s or parent’s income may be deemed available to a Medicaid applicant, even if the applicant is not living in the same home as the spouse or parent._[45] 

            The ability of 209(b) states to impose stricter eligibility criteria than SSI is not limited to financial criteria.  Criteria for determining disability may be stricter in 209(b) states; or Medicaid eligibility for disabled persons may be limited to persons age 18 years or older._[46]  However, if a state limits eligibility to persons 18 years of age or older, the state must grant Medicaid eligibility to persons under age 18 who are eligible for SSI and who would be eligible under the state’s AFDC program, but for those persons’ SSI benefits._[47] 

            Finally, 209(b) states must apply the same Medicaid eligibility criteria to SSI recipients as are applied to individuals who do not qualify for SSI._[48]

Do SSI or Medicaid Criteria Apply?

            The Ramey decision, issued on October 1, 1999, considered, among other things, (i) whether, in an SSI state, a trust approved under the federal SSI eligibility criteria could nonetheless be considered invalid under state Medicaid law; and (ii) whether a Medicaid beneficiary in an SSI state can be denied Medicaid benefits under state Medicaid regulations if the individual continues to qualify for SSI._[49]

            The case involved three plaintiffs, all severely disabled with multiple sclerosis.  All three had self-settled trusts.  The main issue before the Court was whether the individual trusts were available resources in excess of $2,000 to the respective plaintiffs.  In analyzing the trusts, the State of Colorado attempted to apply the federal and state laws relative to Medicaid Qualifying Trusts, and the Colorado Medicaid laws requiring that all trusts for Medicaid beneficiaries be approved by the state Medicaid agency.

            The Court correctly determined that Colorado is a state in which an individual who is eligible for SSI benefits is categorically eligible for Medicaid.  The Court held that, since the plaintiffs’ trusts were approved by the Social Security Administration and, given that the plaintiffs were qualified for SSI, the state was required to grant them Medicaid benefits, regardless of whether their trusts complied with the state’s Medicaid law._[50]  The District Court, following another prominent holding,_[51] found that the Medicaid agencies in SSI states cannot employ methodology or criteria more restrictive than that of SSI when evaluating trusts. 

            Since the Social Security Administration had already approved two of the trusts, the Court held that the State of Colorado could not now fail to approve the trusts.  Further, the Court held that the state Medicaid agency had no independent right to review the trusts once the trusts had been approved by Social Security.

            The District Court’s opinion was affirmed in 2001 by the United States Court of Appeals for the 10th Circuit in Ramey v. Reinertson, 268 F.3d 955 (10th Cir. 2001).  

            The Court’s holding in Ramey reaches beyond the treatment of SSI-approved trusts.  It governs any situation in which an SSI state’s Medicaid regulations impose more restrictive criteria for eligibility than the federal regulations governing SSI. 

            The result is that, in an SSI state, an individual who is eligible for SSI under the federal Social Security regulations cannot be denied Medicaid benefits due to the application of a more restrictive state law or regulation.  However, 209(b) states  are still permitted to use Medicaid eligibility criteria that are more restrictive than SSI criteria.

Special Planning Considerations for SSI

Planning for Individuals in SSI States

            To SSI beneficiaries living in SSI states, the Ramey case is extremely important.  In these states, a trust which is approved by the Social Security Administration for an SSI beneficiary is not required to comply with any additional state requirements.  Additionally, an individual who qualifies for SSI cannot be denied Medicaid under state Medicaid laws imposing more restrictive eligibility requirements than those imposed by SSI. 

            Thus, for the Medicaid recipient who is eligible for SSI, that person’s Special Needs Trust must comply with SSI criteria, regardless of state Medicaid criteria.  Further, if such an individual qualifies for SSI, even after consideration of all cash and in-kind income, that individual cannot be denied Medicaid benefits, even if a calculation of the individual’s in-kind income under state Medicaid regulations might otherwise result in ineligibility.

            If the Special Needs Trust beneficiary’s Medicaid eligibility is due to SSI eligibility, a Special Needs Trust must be drafted and created in accordance with both OBRA ‘93 criteria and the SSI criteria found in the POMS.  This will require certain trust provisions be more restrictive than required under Medicaid regulations alone.

            When a Special Needs Trust is created for an adult beneficiary, SSI will not recognize the trust as valid if it is created by the beneficiary’s parent or grandparent.  This is because SSI does not consider a parent or grandparent to have complete legal authority over the assets of an adult child or grandchild, even when the parent or grandparent is acting under a power of attorney.  Thus, a Special Needs Trust for an adult beneficiary must be created by a court or by the beneficiary’s legal guardian, or the beneficiary in the case of a pooled trust account, to satisfy SSI requirements in the POMS.

            The POMS also require in “doctrine of worthier title," states that the trust must name at least one specific individual as the ultimate contingent beneficiary, after repayment to the State for medical assistance benefits provided.  In “worthier title” states, it is not sufficient merely to name the beneficiary’s estate as contingent beneficiary or name the beneficiary’s heirs at law under the state’s laws of intestacy.  Without a specifically named individual beneficiary, thr Trust is not irrevocable for SSI purposes; further, the assets in the trust will be treated as available to the beneficiary.

            The Special Needs Trust should also be drafted carefully to take advantage of the more liberal treatment of in-kind income under the SSI regulations.  Recall that the monthly reduction in SSI benefits resulting from the receipt of in-kind income is not necessarily related to the actual value of in-kind income received.  For example, if an individual receives $500 in groceries each month, the reduction in that individual’s SSI benefit will be the same as if the individual receives free rent, groceries and utilities each month valued at $5,000.  The ability to receive in-kind income from the Special Needs Trust can be of great value to an SSI beneficiary living in an SSI state.   

            Therefore, the trust should provide that distributions from the trust be limited to non-cash distributions to the beneficiary or cash distributions paid to third parties on behalf of the beneficiary.  Cash distributions to third parties may be for the purchase of support items or for the purchase of non-support items or supplemental needs not covered by public benefits. Examples of these non-support or supplemental needs items could include: a specially equipped van or other vehicle for transportation; color televisions, other entertainment appliances or computers; periodical subscriptions; personal care goods; electric wheelchairs; other supportive devices; or professional health-care services not otherwise covered by Medicaid.  Distributions for non-support or supplemental needs will not be counted as either cash income or in-kind income to the beneficiary.

            However, the distribution of in-kind income to an individual who may not be receiving the full SSI benefit of $579 per month can cause problems.  Under the presumed value rule, if the individual’s monthly SSI benefit is equal to an amount less than $20 plus one-third of the maximum benefit, the offset from in-kind income will reduce the individual’s SSI benefit to $0 and will result in ineligibility.  Under the one-third reduction rule, the same result will occur if the individual’s monthly SSI benefit is less than one-third of the maximum SSI benefit before the offset. 

            Thus, cash distributions from the trust to third parties to purchase support items constituting in-kind income should be limited to situations where the SSI reduction for in-kind income will not result in a complete offset of the beneficiary’s monthly SSI benefit.  This will require that the trustee know which rule will apply to the calculation of the individual’s benefit reduction for in-kind income; and will also require that the trustee have current and accurate information on the exact amount of the individual’s monthly SSI benefit.

            If an individual planning for SSI chooses to make gift transfers to reduce his or her resources to SSI eligibility levels, the applicable SSI regulations will result in large penalty periods for small gifts, but will limit the maximum period of ineligibility to thirty-six months.  In contrast, gift transfers to become eligible for Medicaid long-term care or HCBS benefits will result in shorter penalty periods for small transfers, but there is no limit on the length of the penalty period if the transfer was made within thirty-six months before applying for Medicaid. 

            For example, if an individual lives in a state that provides no state SSI contribution payment and where the average monthly cost of Medicaid nursing home care is $5000, a gift transfer of $20,000 will result in a 4-month penalty period under Medicaid regulations.  ($20,000 ) $5,000 = 4 months.)  On the other hand, the same gift transfer under SSI regulations would result in a penalty period exceeding 34 months!  ($20,000 ) $579 = 34.54 months.)  Any gift planning will have to be based on the more restrictive SSI regulations.  Otherwise, a gift transfer could result in a significant and unexpected additional delay in the individual’s ability to qualify for either SSI or Medicaid.

            If the SSI applicant chooses to make gift transfers to qualify for SSI, it is preferable to make gifts to persons who may not need or want to spend their gifts on themselves.  If these individuals voluntarily use their gifts to provide in-kind support to the applicant, the resulting in-kind income will be treated in the same manner under SSI regulations as in-kind income from a trust.

            The danger here is that those individuals receiving gifts can be under no legal obligation to provide any support to the applicant from gift proceeds.  Otherwise, the arrangement may be treated as an implied trust and result in the entire amount of the gift being counted among the individual’s non-exempt resources.  This would completely defeat the purpose for making the gifts: to reduce the individual’s resources below eligibility levels.  

Planning for Individuals in 209(b) States

            For individuals who live in 209(b) states, both SSI and Medicaid regulations will have to be considered in any plan to achieve eligibility.  If the individual wishes to become eligible for both SSI and Medicaid, each option under the plan will need to be based on the most restrictive regulation applicable in that individual’s particular state. 

Thus, these individuals will need to follow the more restrictive SSI regulations regarding creation of trusts and transfers without fair consideration.  

At the same time, they may not be able to take advantage of the liberal SSI treatment of in-kind income or deemed income.  Non-cash distributions from a Special Needs Trust or from other third parties will need to be limited to non-support items not provided by available public benefits.

            For these individuals, combined SSI and Medicaid planning may be less attractive than traditional Medicaid planning alone.  For all of the additional sacrifice over and above the Medicaid eligibility requirements, the additional benefit for SSI eligibility will be limited to the maximum SSI benefit of $579 per month, plus the state contribution amount, if any.  The decision to pursue a combined SSI and Medicaid eligibility plan or a plan solely to achieve Medicaid eligibility will depend largely on the Medicaid regulations applicable in the individual’s state of residence.   

Conclusion

            Many of the basic tools used in planning for means tested public assistance, such as gifting or the use of various types of trusts, are applicable to both SSI and Medicaid planning.  However, planning for SSI eligibility involves strategies and options that differ from those used when planning for Medicaid alone.  This is due largely to differences between SSI and Medicaid regulations governing the treatment of trusts, transfers without fair consideration and in-kind income. 

            For individuals who live in SSI states, these differences can provide greater flexibility in the administration of Special Needs Trusts and the receipt of in-kind income, since Medicaid eligibility is automatic for applicants who qualify for as little as $1 per month in SSI benefits.  However, these differences can also result in having to meet more restrictive criteria regarding the creation of trusts and the penalty periods imposed for making gift transfers.

            For individuals living in 209(b) states, it will be necessary to plan for both SSI and Medicaid eligibility by complying with the most restrictive SSI or Medicaid regulations applicable.  Thus, the Medicaid regulations applicable in the individual’s particular state will be extremely important to choosing these strategies and options.

            Eligibility planning for SSI is extremely complex, especially where the goal is to preserve or achieve eligibility for both SSI and Medicaid.  Such planning requires experience and an in-depth knowledge of both SSI and Medicaid regulations.  As a result, individuals planning for SSI and/or Medicaid eligibility should always seek the advice and guidance of an Elder Law attorney experienced in this area.

 
End Notes