In this article we will explain how to use special needs trusts in order to maximize social security benefits for individuals with disabilities. This article is the seventh in a series of nine articles explaining the Eight Goals of a Good Estate Plan.
In Illinois, a disabled individual is entitled to receive up to $733.00 per month inSupplemental Security Income (“SSI”) if two things are true:
(1) the individual has less than $2,000.00 in assets; and
(2) the individual makes less than $733.00 per month in income.
Even if the individual makes less than $733.00 per month in income, income below this level will reduce the amount of SSI income for which he or she is eligible.
We use Special Needs Trusts, also known as Supplemental Needs Trusts, in order to allow disabled individuals to accumulate assets and income in excess of these amounts without reducing the amount of SSI benefits that they are eligible to receive.
Typically a loved one will create the trust and serve as trustee, with the disabled individual being the beneficiary. A bank account will then be opened in the name of the trust.
The disabled individual’s assets, or gifts from loved ones, will be transferred to the trust bank account. If the disabled individual is receiving income outside of SSI, the income will be deposited directly into the trust bank account.
The trustee will have the obligation to use the funds only for the benefit of the disabled individual. The trustee can use the funds to pay for most of the individual’s needs with the exception of rent and groceries. Habitation and food are excluded, because this is theoretically the purpose of the individual’s SSI payments. The idea behind Special Needs Trust is to allow the disabled individual to have a good quality of life, including entertainment, vacations, and amenities, without reducing their eligibility for SSI income.
Special Needs Trusts are also useful tools in the estate plans of the parents of disabled children. Typically we recommend that the parents’ wills and trusts provide that the inheritance that would normally go to the disabled child be disbursed instead to that child’s pre-established Special Needs Trust. This avoids having a child who is reliant on SSI income lose that income because his or her assets have increased above $2,000.00 as the result of inheritance. If the inheritance instead goes directly into the child’s pre-established Special Needs Trust, the child’s SSI income will not be reduced based on the receipt of the inheritance. It is important to note that in order for this strategy to work, the Special Needs Trust must be created BEFORE the parent passes away.
Any disabled individual receiving SSI, or a loved one of such individual, should consider Special Needs Trusts as a way to allow him or her to accumulate assets or enter the workforce without losing SSI benefits.
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