Last Tuesday, Owen went to a movie at the theater down the block from where he lives and on the way home stopped at his local grocery store to get spaghetti and sauce for dinner. Owen, a 52-year old man with Autism, receives SSI and Medicaid-funded services and lives in a host home where he has a high degree of independence.
Owen’s parents passed away two years ago and funded a special-needs trust to preserve his benefits and to give him resources to replace the money they spent for him to have access to entertainment, clothing, social activities and more. Medicaid and SSI pay for food, shelter and his health care needs but there’s nothing in those benefits for him to also enjoy life as he had when his parents lived.
How Owen paid for his movie and popcorn and dinner matters in special-needs planning. Done poorly, Owen could lose access to his benefit programs and miss a month or more of having a safe place to live, food and health care. Done well, the trust enhances Owen’s life and lets him watch his favorite movies, have his cell phone, streaming services and everything else that make his days enjoyable.
In your planning, you will name a trustee your special-needs trust. Choose someone who can understand the basic rules around spending money from the trust and who can get good help when they don’t know what to do.
There are two issues that popped up in Owen’s day for a trustee to stay within the rules.
The first is that special-needs trusts cannot give cash to beneficiaries. Owen’s trustee could not give him $50 that Tuesday afternoon for him to go to the movies and buy some groceries. That is a cash transaction that could jeopardize benefits.
The second is that the trust cannot be used to enhance food and shelter without risking losing some or all of the government benefits.
So what could Owen’s trustee do to help him have a good time at the movies and something to eat?
A trustee can pay for goods and services directly. In this case, the trustee could buy Owen’s movie ticket in advance and give it to Owen or his companion if Owen needed one. The popcorn presents a minor challenge – does it count as food? It’s not a meal, it’s not complete nutrition but I think we’d all agree it’s food. Ideally, the trust does not pay for the popcorn and Owen uses other funds, such as money in an ABLE account or his rep payee account, for the popcorn.
The groceries are clearly food and the trust will not want to pay for these items with trust funds. Owen will want to use his rep payee account or let his host home provider make this purchase.
Another issue that pops up is how do the tickets get bought? Paying regular expenses from the trust can be simplified with monthly bill payments. Movie tickets usually require cash at the window or payment online.
Today, special-needs trusts can have credit cards attached to an account to make transactions easier. The trustee could buy the ticket online and then Owen could access the theater app on his phone to get into the movie.
Owen, if he had a card, could go to the movies and pay with the card and the trust would then pay off the card each month.
There are downsides to having the beneficiary with access to the credit card. Giving access through the card increases the potential to spend on items that are not allowed by government rules, for financial abuse and for expenditures being made for someone other than the beneficiary.
Special-needs trusts are there to protect benefits and add to the quality of life of a person with special-needs. While more complicated to use than a typical bank account for spending, the trust should not sit and accumulate without being used. If you are a trustee and don’t know what to do, find a good planning team with your investment professional, attorney and CPA and unlock the trust to support the person the trust is designed to help.