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Can a Special Needs Trust Own a Home?

Article written by Illinois & Iowa Attorney Kevin O'Flaherty
Updated on
February 26, 2020

This article will cover what a special needs trust can be used for, how home ownership may impact Supplemental Security Income (SSI), first-party trusts versus third-party trusts, and some technicalities associated with a special needs trust and SSI.

What Can a Special Needs Trust Do?

Beyond their use for medical items or items directly related to disability, special needs trusts can be a versatile tool for handling a broad spectrum of costs a loved one might encounter. Because what is considered “special needs” is loosely defined and casts a wide net, most trusts consider everything other than what is covered by the trust beneficiary’s public benefits program. Since public benefit programs are only meant to pay for goods and services that are absolutely necessary, such as basic needs, critical care items, and often medical services, a special needs trust can be used for nearly any supplemental item that improves the beneficiary’s quality of life. This may include but is not limited to housing, transportation, utilities, medical care outside of what is covered by Medicaid, etc.

Stipulations On Special Needs Trusts

The big caveat to using the funds from a special needs trust to pay for items such as a mortgage is that it may affect your Supplemental Security Income. Individuals receiving SSI may not own more than $2,000 in assets, $3000 for a couple, and depending on how the special needs trust is set up and used those funds might be counted against the monthly SSI award. The amount of SSI an individual can qualify for differs from state to state, but if a recipient also receives a too large amount from his or her special needs trust it may disqualify them from future SSI payments. For example, if an individual receives three thousand dollars a month from their special needs trust, even if it is used for purposes that are necessary, it will still be considered income and would disqualify them from receiving SSI. However, if the trustee directly pays for a beneficiary’s food or shelter from funds from the trust it is considered an in-kind support and maintenance payment (ISM). An ISM payment’s total effect on SSI benefits is typically capped at one-third of the maximum federal portion of the SSI amount per month. Taking this into account and working with professional legal counsel you can determine the best structure for a special needs trust so that payments from the supplemental security income are minimally affected. To have the least impact on SSI it is best to set up the special needs trust as a third-party trust acting purely as a bill-paying service for the beneficiary.

First-Party Versus Third-Party Trusts and Property

When buying a home it is important to understand the differences between a third-party trust and first-party trust and how each affects SSI. Assets held in a first-party trust are considered owned by the beneficiary, while a third-party trust designates the assets as being held by someone other than the beneficiary. As far as the ownership of a home, depending on how the home is titled when it was bought, or if it was transferred to the beneficiary there typically won’t be any impact on the beneficiary’s SSI, regardless of the type of trust. However, when the home is sold, a first-party trust will provide no protection from the sale of the home going against the beneficiary’s SSI. Meanwhile, the sale of a home from a third-party trust should not impact the beneficiary’s SSI. This is because when a home is sold by a first-party trust it is considered income for the beneficiary, triggering the SSA to possibly list the special needs beneficiary as exempt from future SSI. When sold by a third-party special needs trust the proceeds are not considered income for the beneficiary. Costs associated with owning a property, such as utility bills, repair costs, etc, can still go against a beneficiary’s SSI depending on the structure of the trust.

Another significant consideration with a special needs trust and home ownership is the possible effect on Medicaid and estate recovery. If the home is the property of a first-party trust (owned by the beneficiary) and the beneficiary dies, Medicaid may seek reimbursement for expenses incurred during the beneficiary’s lifetime. This could be an unexpected complication if other people still live in the home and the beneficiary’s estate is forced to sell the home in order to cover the claim from Medicaid.

In summary

A special needs trust is a versatile tool to ensure quality of life for an individual with special needs. Care must be taken when considering the impact any of the stipulations under the trust may have on the beneficiary’s eligibility for Supplemental Security Income. Because of this, it is best to work with a qualified legal professional when structuring the special needs trust. While buying, selling, or transferring a piece of property can certainly affect an individual’s SSI eligibility, if the trust is structured correctly the impact can be minimized. For more information on special needs trusts, check out our article Illinois ABLE Accounts and Special Needs Trusts.


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