Oh dear, my client is getting a big lump sum retroactive award from SSA!

An attorney asks:  

I am seeking guidance for a client who is potentially subject to back pay from SSA. If a person is not able to spend down the funds is there a best way to move money out of their name to protect benefits? Would we consider a 1st party SNT or ABLE account in this scenario?  

Any guidance would be greatly appreciated.

Our response based on 50 years of experience:  Don’t do anything for about 6-8 months.  The retroactive award (also called an “underpayment” by SSA) is not counted for 9 months following the month the claimant receives the retroactive award.

SSA policy is found in POMS SI 01130.600 Retroactive Supplemental Security Income (SSI) and Retirement, Survivors and Disability (RSDI) Payments:

B. Policy

1. 9-Month exclusion

The unspent portion of retroactive SSI and RSDI benefits received on or after 3/2/04 is excluded from resources for the 9 calendar months following the month in which the individual receives the benefits.

I find that most of my clients have spent the money long before the 9 months are up.  Therefore, to avoid charging an attorney fee for an SNT or for helping to get the client into an ABLE account now, just wait until the 8th month before doing any special needs planning.

The new rule changes paragraph (b) of the existing regulation on Inkind Support and Maintenance, 20 CFR 416.1130 to read as in new paragraph (b). 

The old rule of paragraph (b) provided:

(b) How we define in-kind support and maintenance. In-kind support and maintenance means any food or shelter that is given to you or that you receive because someone else pays for it. Shelter includes room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, and garbage collection services. You are not receiving in-kind support and maintenance in the form of room or rent if you are paying the amount charged under a business arrangement. A business arrangement exists when the amount of monthly rent required to be paid equals the current market rental value (see § 416.1101). Exception: In the States in the Seventh Circuit (Illinois, Indiana, and Wisconsin), a business arrangement exists when the amount of monthly rent required to be paid equals or exceeds the presumed maximum value described in § 416.1140(a)(1). In those States, if the required amount of rent is less than the presumed maximum value, we will impute as in-kind support and maintenance, the difference between the required amount of rent and either the presumed maximum value or the current market value, whichever is less. In addition, cash payments to uniformed service members as allowances for on-base housing or privatized military housing are in-kind support and maintenance.

That has been published to be changed to the new paragraph (b) (1) below on September 30, 2024.

PART 416—SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND DISABLED 

Subpart K—Income ■

1. The authority citation for subpart K of part 416 is revised to read as follows: Authority: 42 U.S.C. 902(a)(5), 1381a, 1382, 1382a, 1382b, 1382c(f), 1382j, 1383, and 1383b; sec. 211, Pub. L. 93–66, 87 Stat. 154 (42 U.S.C. 1382 note). ■

2. In §416.1130, revise paragraph (b)(1) to read as follows: 

20 CFR §416.1130 Introduction. * * * * *

 (b) * * * 

(1) We calculate in-kind support and maintenance considering any shelter that is given to you or that you receive because someone else pays for it. Shelter includes room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, and garbage collection services. You are not receiving in-kind support and maintenance in the form of room or rent if you are paying the amount charged under a business arrangement. A business arrangement exists when the amount of monthly required rent to be paid equals or exceeds the presumed maximum value described in §416.1140(a)(1). If the required amount of rent is less than the presumed maximum value, we will impute as in-kind support and maintenance the difference between the required amount of rent and either the presumed maximum value or the current market rental value (see §416.1101), whichever is less. In addition, cash payments to uniformed service members as allowances for on-base housing or privatized military housing are in-kind support and maintenance. 

* * * * * [FR Doc. 2024–07675 Filed 4–10–24; 8:45 am] 

Example:

Mom has rental home that she normally leases to strangers for $1,500 per month.  She leases instead to her disabled son and his wife and kids for $350 (a few dollars more than this year’s PMV amount).

Before the rule change, SSA would calculate the difference between the Fair Market Value of $1,500 and the rental agreement of $350 as a “rental subsidy” and say that the disabled person is receiving $1,150 as “countable income” making the disabled person not eligible for SSI benefits.  SSA lost case-after-case when they were challenged in court.

The Seventh and Second Circuit Court of Appeals decisions are now accepted by the new published regulation, as official SSA policy nationwide beginning 9/30/24.  

As of that date if the disabled person in the example has a lease for the amount of the “presumed maximum value” rule [calculated as 1/3 of the Federal Benefit Rate +$20], or greater, there can be no reduction in the maximum SSI check and SSA has to pay the full $943 per month SSI check unreduced by the PMV because the disabled claimant has enough from his SSI check to fully pay his own shelter expenses.

The Social Security Administration (SSA) has published a final rule simplifying and expanding its rental subsidy program for Supplemental Security Income (SSI).

Effective September 30, 2024, the new rule is likely to allow more people to qualify for SSI. In addition, some current SSI recipients may see an increase in their monthly benefit amount as a result. The rule change is part of a broader agency effort to streamline certain aspects of the SSI program.

SSI applicants and recipients may want to talk to a special needs planning lawyer about the new rule if they have questions about how it affects them.

Remind Me, What Is SSI?

SSI is a federal public benefits program that provides a modest monthly benefit to qualifying recipients. It serves people with disabilities and older adults across the United States who meet strict income and resource limits. In most states, to be eligible for SSI, an individual must have less than $2,000 to their name.

SSI Rental Assistance Explained

Income does not only affect whether an individual is eligible for SSI benefits. It also has an impact on the SSI recipient’s benefit amount.

The SSA defines income as anything a person can use to meet their food and shelter needs. This includes not only “earned” income from a job and “unearned” income such as gifted cash, but also what SSA calls “items received in-kind,” including shelter given to an individual or that someone else pays for.

A rental subsidy can result in a lower SSI payment for current recipients. It may also disqualify someone from receiving SSI because their income is too high.

However, SSI is now changing how it calculates the rental subsidy amount. The new rule will expand an exception that previously only applied in seven states but starting in September will apply nationwide.

How Rental Subsidy Is Calculated – The Current Rule

If an individual pays a monthly required rent charge that equals or exceeds the current market rental value (CMRV) in their area, a “business arrangement” exists under SSA rules. This means that the SSA does not see the SSI applicant or recipient as receiving rental assistance.

SSA regulations consider a person to be receiving a rental subsidy — a type of unearned income — if they are paying a monthly rent amount for a property that is less than the CMRV where they live. This commonly occurs when somebody is living with a family member who charges them less for rent than what they would pay on the open market.

For example, consider an SSI recipient who lives with their sibling, paying a monthly rental rate of $400. If the CMRV in their area is $800, the amount of rental assistance would be $400.

However, SSA imposes a regulatory cap, called a Presumed Maximum Value (PMV), on the rental subsidy amount that can be assessed; that amount is $334.33 for 2024. The SSA also has an unearned income exclusion of $20 per month.

Using the example above, imagine a landlord accepting $400 per month instead of the CMRV of $800. The amount that the SSA would count as rental assistance would be $314.33 ($334.33 PMV minus the $20 general income exclusion amount.

Assuming a maximum monthly SSI payment of $943 in 2024, and assuming there is no other countable income, the recipient’s benefit amount would be reduced to $628.67 ($943 minus $314.44).

Exception

Following court cases that challenged SSA’s rental subsidy rule, exceptions were provided in seven states — Texas, Connecticut, New York, Vermont, Illinois, Indiana, and Wisconsin.

In these states, a “business arrangement” still exists. However, the rental subsidy does not count as income if the monthly rental rate equals or exceeds the PMV, instead of the CMRV.

Apply this exception to the example above: An SSI recipient in Connecticut pays $400 per month instead of the CMRV of $800 per month. They would not have their rental subsidy count as income because the $400 payment is more than the $334.44 PMV for 2024.

The SSA notes that in the seven excepted states, application of the rental subsidy exception generally results in a higher SSI payment amount.

New Rule Applies SSI Rental Subsidy Exception Nationwide

SSA announced in April 2024 that the new rule would make the state-specific rental subsidy exception national policy for SSI applicants and recipients.

According to the SSA, the policy change will increase the benefit amount for some recipients and allow more people to qualify for SSI payments. However, it will not affect how much SSA pays per month (a maximum of $943 in 2024).

Disability Scoop reports that the updated policy is expected to raise payments by an average of $132/month for 41,000 people and allow 14,000 additional people to qualify for SSI annually.

Even with this exception, though, some applicants could see their monthly benefit amount reduced; others may not qualify. The actual formula that the SSA uses is complicated and includes the number of household members, as well as other sources of income.

The rental subsidy rule change is the latest SSA effort to remove barriers to accessing SSI payments. Also in the fall of 2024, the agency will no longer use food an applicant or recipient receives from friends, family, and community support networks as part of its “in-kind support and maintenance” calculations. And in April, SSA published a rule changing how it factors support from other public assistance programs, such as SNAP, when determining beneficiary payments.

More than 7 million individuals received federal SSI benefits in January 2023, with payments averaging $654 per month. During calendar year 2022, 1.23 million individuals applied for SSI benefits based on blindness or disability, while 172,000 applied based on age. Approximately 522,000 applicants received SSI benefits in 2022, a decrease of 1 percent compared to 2021.

Understanding Social Security Benefits Can Be Difficult. Your Attorney Can Help.

While the new SSI rule may be advantageous for many low-income, disabled Americans, terms like “PMV,” “CMRV,” and “in-kind” support are not necessarily intuitive. They may add to the confusion around an already long and challenging SSI benefits process.

To make sure the value of your rental subsidy is accurately determined, and that you receive the SSI benefits you’re entitled to, get in touch with your special needs planning attorney.

When we do an SNT for a claimant on SSI and SSI-related Medicaid, the receipt of the personal injury award funds is countable unearned income in the month received.  If we transfer out the funds to an SNT, the funds do not become a disqualifying resource if completed before the first of the following month.

But what do we do about the income in the month of receipt?  It is counted as disqualifying income and causes a potential overpayment.  To be eligible in any particular month, the SSI claimant must have resources of less than $2,000 on the first of the month, and income of less than $963 for any one of the days in the month. ($943 + $20 “general  income disregard”).

EXAMPLE:  William receives a personal injury settlement check of $300,000 on March 11th.  It is counted as “unearned income” for the March SSI check already received that month, that was based on his not having this unanticipated income.  We move the $300,000 into a Special Needs Trust before April 1st, so there is no problem with ongoing ineligibility for having too many resources in months May, June, July, etc..  But what about the excess income received in March, counted as income received March 11th?   It is  legally an overpayment, and SSA will generate a notice to William that he had excess income in March, and he owes the entire SSI check back, as an income overpayment, in the sum of $943.  What’s the legal answer?

The answer is requesting an SSA “administrative waiver” of the overpayment amount.  The rule effective for many years past was that if the amount of the overpayment was less than $1,000 that SSA could waive it, IF REQUESTED TO DO SO, because it was administratively not worth pursuing.  Now that number jumps to $2,000 that can be “administratively waived.”

If the person requests a reconsideration on the amount of the overpayment and the person is liable for an overpayment of $2,000 or less, the reconsideration is treated as a request for waiver after the processing center (PC) makes a formal reconsideration determination or dismissal, if there will be no effect on current or future benefits per GN 02201.013E.1.

In a few years, the current SSI payment amount would exceed the $1,000 authority to waive it.  So SSA has just announced that they are waiving the administrative waiver from $1,000 to $2,000.

GN 02250 TN 56 and SI 02260 TN 47 – Waiver Provisions for Overpayments

  • The administrative waiver tolerance has been increased from $1,000 to $2,000 in both Title II and SSI cases;
  • When a liable person requests waiver and the total amount of that person’s liability is $2,000 or less, recovery will be waived (unless there is some indication that the person may be at fault);
  • Application of the $2,000 administrative waiver tolerance depends on the total amount of a person’s liability;
  •  Example: a person who is liable for several overpayments, which total more than $2,000, even though each is $2,000 or less, cannot be considered for waiver under this tolerance;
  • If an overpayment of more than $2,000 has been reduced to $2,000 or less by repayment or collection, the waiver tolerance does not apply;
  • If the person requests a reconsideration on the amount of the overpayment and the person is liable for an overpayment of $2,000 or less, the reconsideration is treated as a request for waiver after the processing center (PC) makes a formal reconsideration determination or dismissal, if there will be no effect on current or future benefits per GN 02201.013E.1;
  • Neither full development nor an SSA-632-BK (Request for Waiver of Overpayment Recovery or Change in Repayment Rate) is required for waivers which will be processed under this provision.

Also, SSA has made another claimant-friendly update.  Because SSA is so bogged down in workload with the reduction in staff of almost 10,000 workers, but an increase in numbers of baby-boomer retirees and others seeking benefits, they are suspending Continuing Disability Reviews (CDRs) for the remainder of the year to give Disability Determination Servicesin the 50 states and SSA personnel a breather.

EM-24021 – 2024 Full Medical CDR Workload – One-Time-Only Instructions

  • For the remainder of FY 2024, the field offices will not send additional full medical CDRs to DDS;
  • If unassigned full medical CDRs are currently pending, DDS will take no action for the remainder of FY 2024;
  • For pending full medical CDRs that require a consultative evaluation, all CEs scheduled on or after June 21, 2024 will be canceled (unless the case is for a low birth weight baby, expedited reinstatement, pre-hearing, disability hearing, or fraud or similar fault);
  • If there is currently insufficient evidence in the file to make an age-18 redetermination, DDS will not initiate additional development, schedule a CE, or assign a medical or psychological consultant for review.

Note: See update to this post from September 11, 2024

Medicaid benefits are required by federal law (Section 1634(c) of the Social Security Act in Title 19, Medicaid) to be continued for persons transitioning from SSI welfare benefits to Disabled Adult Child (DAC) benefits. They are NOT Pickle amendment people but are eligible for continuing Medicaid benefits by a separate section. The cited federal statute applies to both 1634 states and 409b states.

Section 1634(c) of the Social Security Act on Title 19, Medicaid, states:

(c) If any individual who has attained the age of 18 and is receiving benefits under this title on the basis of blindness or a disability which began before he or she attained the age of 22— (1) becomes entitled, on or after the effective date of this subsection, to child’s insurance benefits which are payable under section 202(d) on the basis of such disability or to an increase in the amount of the child’s insurance benefits which are so payable, and 2) ceases to be eligible for benefits under this title [ “DETERMINATIONS OF MEDICAID ELIGIBILITY”] because of such child’s insurance benefits or because of the increase in such child’s insurance benefits, such individual shall be treated for purposes of title XIX as receiving benefits under this title so long as he or she would be eligible for benefits under this title in the absence of such child’s insurance benefits or such increase.

Why is this critically important for disabled adult children? Because of the 24-month waiting period before Medicare kicks in. Losing Medicaid and not having it immediately replaced by Medicare is a potential life-threatening situation. And making disabled individuals who lost SSI but are “deemed eligible” to apply to DCF is burdensome, unnecessary, and wrong. The termination of Medicaid should not happen at all when a DAC adult child goes from SSI to DAC benefits higher than the maximum SSI amount because of actions that SSA should take to maintain SDX eligibility.

Who decides? I used to believe that when Medicaid was improperly denied, it was the state Medicaid agency that was failing to continue benefits.

Here is federal Medicaid’s “implementation notice to states”:

“This eligibility group describes adult children with disabilities under section
1634(c) of the Social Security Act. Section 1634(c) of the Act requires states to
consider childhood disability beneficiaries who lose SSI eligibility as if they were
still SSI recipients for Medicaid purposes so long as they would have remained
otherwise eligible for SSI benefits but for their entitlement to (or increase in)
social security disability benefits on or after July 1, 1987.” To be a “deemed SSI recipient” after receiving DAC approval, it is the responsibility of the federal government through the Social Security Administration to make the decision
that the new DAC recipient is “otherwise eligible for SSI” applying the SSI rules. Most DCF workers do not know the SSI rules for eligibility, nor should they. There are substantial differences between SSI and Medicaid eligibility rules (See my partner Steve Hitchcock’s excellent CLE presentation pointing out all the eligibility differences between SSI and Medicaid ).

SSA currently only generates a notice on the State Data Exchange (SDX) list to add or remove individuals who comprise “Mandatory Medicaid recipients” who get cash SSI benefits that Florida Medicaid has to award or continue the benefits for. When a person goes on SSI benefits, they get state basic Medicaid benefits without even filing an application. I have put thousands of individuals on Florida Medicaid, and I’ve never filled out a Medicaid application. The relevant Florida Statute is 409.903 and subsection (2) which together state:

F.S. 409.903 Mandatory payments for eligible persons.—The agency shall
make payments for medical assistance and related services on behalf of the
following persons who the department, or the Social Security Administration by
contract with the Department of Children and Families, determines to be eligible,
subject to the income, assets, and categorical eligibility tests set forth in federal
and state law…. 2) A person who receives payments from, who is determined eligible for, or who was eligible for but lost cash benefits from the federal program known as the Supplemental Security Income program (SSI).…

The above Florida statute conforms to the Florida Medicaid State Plan filed with the federal government, declaring Florida to be a “1634 state” giving Medicaid to anyone who receives SSI or is deemed to be eligible for SSI but not receiving the SSI check itself. This occurs because when SSA staff assesses “deemed eligibility,” the unearned income in the form of the monthly disability check is NOT counted by Section 1634(c). We used to send parents off with an attached memo to file a Request for Fair Hearing with DCF. Recently, however, we are hearing about DCF Hearing Officers stating that “it’s not our job; you have to go to SSA to have them find you “otherwise eligible for SSI.”

Are they right? Yes! So, where’s the disconnect? It’s the missing button. Research so far indicates that “the button” to add a particular person initially when they get SSI checks to the SSA SDX list appears to be at the SSA Payment Centers who hit the button whenever instructed to send an SSI check of any amount to a particular person. The front end works great. SSI recipients routinely get automatic mandatory Medicaid. And when the local SSA office awards DAC benefits, if the benefits are greater than the allowable SSI eligibility amount, the local SSA sends a notice to the SSA Payment Center (there are several in the U.S.) to stop the Payment Center from sending the SSI check and apparently the SSA Payment Center removes the adult child
from the SDX list. That works also.

When Florida AHCA (the official Florida Medicaid agency) receives notice that a
particular person is not receiving SSI any longer, AHCA generates a notice saying as of X date you are off SSI-related Medicaid because you no longer receive an SSI check. What should happen? Button, button, who’s got the button? At the time that SSA is determining that a parent of a disabled adult child has died, retired, or themselves be disabled (the three triggering events for DAC benefits of 50% or 75% of dad or mom’s SSA check sent to the DAC kid), SSA staff should execute the determination process that the former SSI adult child is or is not a “deemed SSI claimant” to continue on the SDX list without interruption, and not just generate the SDX notice to Florida Medicaid that X person is no longer receiving an SSI check and no longer eligible for mandatory Medicaid. Just don’t send it!

Here’s the “law” on that: POMS SI 01730.010 Determinations of Medicaid Eligibility

  1. Special SSI Status and Medicaid Eligibility
    Certain individuals eligible for special SSI recipient status are eligible for Medicaid although no cash SSI payments are due. Included in this group are certain 1619(b) individuals, those who would be eligible for title XVI but for a title II cost-of-living increase, certain disabled adult children, certain widow(er)s, and certain drug addicts and alcoholics not receiving payment. (See SI 01715.015 for further explanation.)
  2. POMS SI 01715.015 Special Groups of Former SSI Recipients
    A. Background – Categorical Medicaid eligibility for the aged, blind and disabled is directly related to receipt of SSI in most States. Loss of SSI payments can result in loss of Medicaid coverage. To preserve Medicaid coverage for certain groups of individuals who lose SSI payments, Congress enacted special Medicaid continuation provisions. These provisions require the State Medicaid agencies to continue to consider specified groups of former SSI beneficiaries as SSI beneficiaries for Medicaid purposes, as long as they would otherwise be eligible for SSI payments. In addition, Medicaid agencies are required to determine if the individual would be eligible for Medicaid under any other group.
    B. Policy — Continuation Groups
    4. Disabled Adult Children (Childhood Disability Beneficiaries) Section 1634(c) of the Act requires States to consider title II childhood disability beneficiaries (also known as disabled adult children, DACs, or childhood disability beneficiaries, CDBs) who lose SSI eligibility as if they were still SSI recipients for Medicaid purposes so long as they would have remained otherwise eligible for SSI benefits but for their entitlement to (or increase in) title II benefits on or after July 1, 1987. SSA notifies the 1634 States about members of this group through the SDX. Starting on or about May 1995, members of this group in all States will get special Medicaid referral notice paragraphs numbers 1140 and 1141 (NL 00804.110) in their automated Notices of Planned
    Action when:
    • they lose SSI eligibility due to excess income in a month of title II
    • entitlement; and
    • they are at least age 18;
    • andthe SSI computer record reflects title II continuing income with a
    • Beneficiary Identification Code (BIC) of “C”.

I currently have no idea what the last bullet point means. But clearly, SSA staff are directed to notify the 1634 states (Florida Medicaid) about members of the DAC group who are “otherwise eligible for SSI” even though not receiving SSI checks, but who may be “deemed eligible for SSI.” And thus eligible for 409.903(2) status.

So, in the steps above, who at SSA has the button? Who knows? At SSA offices in Orlando, Tampa, Miami, and West Palm Beach, the staff just shrug their shoulders, stating “We know there’s a button, we know SSA should push the button, but we don’t know where it is; possibly the Atlanta Regional Office?”

What are we going to do about it? Using our contacts at NOSSCR (the National Organization of Social Security Claimant Representatives) which is the NAELA of Social Security world formed in 1984 and with over 5,000 members and staff lobbyists in Washington, we contacted them and they agreed to take the matter to their contacts inside the national SSA office to assist us in finding the button.

Our ask to you. NOSSCR’s first question was “Is this a problem with only one SSA office in Florida?” Nope. “Please send us names and Social Security numbers of persons with similar problems in Florida. If you have a recent client who has received DAC benefits but lost Medicaid who were “otherwise eligible” and the client allows you to add his or her name to our list, please let me know so we can include them in our correspondence to SSA. Email me at David@LillesandLaw.com

Have you heard the terms “special” needs trust and “supplemental” needs trust and wondered what the difference is? The simple answer is that there’s no difference. 

Whether supplemental or special, these trusts serve the same purpose of helping meet the needs of individuals with disabilities while still permitting them to qualify for vital public benefits programs. But there are different categories of special needs trusts and important differences between them that warrant a longer explanation. 

What’s in a Name? Background on Special Needs and Supplemental Needs Trusts

The field of special needs planning began more than three decades ago with the passage of the Omnibus Budget Reconciliation Act (“OBRA”) of 1993, a law that overhauled Medicaid and authorized the creation of a new special needs trust. 

Prior to OBRA, a disabled person under the age of 65 who had assets greater than $2,000 was not eligible for means-tested government assistance programs like Medicaid and Supplemental Security Income (SSI). In the government’s eyes, it didn’t matter if the assets came from an injury or medical malpractice award, pre-disability personal savings, or an inheritance. A disabled person had to remain at or below $2,000 in assets to retain public assistance. 

As a result of this policy, the families of disabled individuals faced a stark choice. They could provide financial support for a disabled loved one, but doing so often resulted in the loss of their means-tested benefits. Another option was to disinherit the person with special needs and leave the money to another family member, such a sibling, for the disabled person’s benefit — a risky option at best. 

However, a third option emerged: the use of a third-party trust that benefited a disabled person but was funded by family members, often a parent. This arrangement kept the trust funds out of the beneficiary’s Medicaid and SSI means testing consideration. 

Congress took a negative view of these third-party trusts and attempted to limit their use. But a compromise emerged when OBRA authorized first-party special needs trusts. 

Some practitioners called for distinguishing between these new trusts and third-party special needs trusts by calling the former “special needs trusts” and continuing to call the latter trusts “supplemental needs trusts.” This approach never really caught on, though. 

Instead, over time, both types of trusts have come under the rubric of special needs trusts and the term “supplemental needs trust” has fallen away. The term “special needs trust” refers to the purpose of the trust — to pay for the beneficiary’s unique or special needs. In short, the name is focused more on the beneficiary, while the name “supplemental needs trust” addresses the shortfalls of public benefits programs.

More than 20 years after OBRA was passed, in December 2016, President Obama signed the 21st Century Cures Act into law. Section 5007 of the Act (“Fairness in Medicaid Supplemental Needs Trusts”) further modernized special needs trusts, allowing a person who meets the government’s definition of “disabled,” yet who is also mentally capable, to establish their own first-party special needs trust, rather than relying on a third party to set it up for them. 

First-Party vs. Third-Party Special Needs Trusts

Special needs trusts (SNTs) now encompass both traditional third-party trusts and first-party trusts created under OBRA. They can hold many types of assets, including cash, real estate, investments, and life insurance policies. 

  • Special needs trusts funded with assets belonging to a person other than the disabled beneficiary (such as a parent, grandparent, sibling, or some combination of family and other individuals) are referred to as third-party special needs trusts.
  • Special needs trusts funded with assets/income belonging to a disabled individual who is also the trust’s beneficiary are called first-party special needs trusts. 

First-Party Special Needs Trust 

First-party special needs trusts derive their name from the fact that they hold assets belonging to the beneficiary of the trust (i.e., first-party assets). They’re also known as: 

  • (d)(4)(A) trusts (referring to the statute)
  • Pay-back trusts (referring to the feature that any funds remaining in the trust at the beneficiary’s death must be used to reimburse the state Medicaid agency)
  • Self-settled trusts (referring to the fact that these trusts are created with the Medicaid beneficiary’s own funds)

First-party SNTs are typically set up by a person with special needs, or on their behalf, who has assets but still wants to qualify for means-tested public assistance (e.g., Medicaid and SSI). 

Often, these assets come from a lawsuit settlement or an inheritance. But in order for the trust’s assets to not be counted for Medicaid/SSI purposes, the beneficiary must, by law, be under the age of 65 when the trust is established and funded.

Third-Party Special Needs Trust

Third-party SNTs are set up by the family members of a special needs individual. Like a first-party SNT, the primary intent of a third-party SNT is to provide financial support to somebody with a disability or functional needs while not jeopardizing their means-tested government benefits. 

There are two main types of third-party special needs trusts: standalone and testamentary. 

  • Standalone third-party SNTs are effective as soon as they’re created and eligible to hold assets from more than one third-party source, usually multiple family members and/or family friends, both during the creator’s lifetime and after. Standalone SNTs can provide cost savings because only one trust is created, but it can pool assets from different individual benefactors. 
  • Testamentary third-party SNTs are created through the estate plan of a third party, taking effect at the time of their death. When the creator passes away, assets specified in their estate plan transfer into the special needs trust. A testamentary SNT can be set up as a dual-purpose trust that allows the creator to keep assets in the trust they need during their lifetime, and then have those assets later transfer to a disabled beneficiary. 

Similarities and Differences Between First-Party SNTs and Third-Party SNTs

First-party and third-party special needs trusts serve the same end: to offer supplemental assets to a disabled beneficiary without disqualifying them from Medicaid, Social Security, and other public benefit programs. 

These programs usually provide a level of support that only meets a person’s most basic needs. Special needs trusts can therefore help to ensure that beneficiaries have access to more resources and enjoy a higher quality of life. 

But while both types of SNTs serve the same goal, there is a major difference between them when it comes to government benefit reimbursement. 

  • With a first-party SNT, after the beneficiary dies, the state Medicaid agency can collect reimbursement for payments made to them during their lifetime. Sometimes, whatever funds remain in the trust are fully exhausted to meet this demand. Once Medicaid gets their cut, the trust balance can pass to other beneficiaries named in trust documents (so-called “remainder beneficiaries”). 
  • Third-party SNTs are not subject to Medicaid reimbursement. When the beneficiary dies, all remaining trust assets are eligible to pass to remainder beneficiaries. The government is not entitled to a Medicaid “clawback.” 

The reason for this difference is that first-party SNTs are funded with first-party money belonging to the beneficiary, while the assets held in a third-party SNT never belonged to the beneficiary. It’s a legal technicality, but an important one. 

Choosing a Trustee for a Special Needs Trust

When setting up a first-party or third-party SNT for a disabled loved one, among the most important decisions is who will serve as trustee, or the party that manages the trust on behalf of the beneficiary. 

A trustee can be a person, like a family member or friend, or a professional trust administrator, such as an attorney or a financial institution. More than one party can simultaneously serve as trustee. It’s also a good idea to name a successor trustee to take over for the original trustee(s) when they are no longer able to serve. 

Whoever you choose to serve in this rule, choose wisely. The responsibilities of a special needs trust trustee are crucial to maintaining a beneficiary’s public assistance eligibility. 

The trustee must understand the trust’s terms and benefit regulations and only pay for expenses that an SNT can cover. The trustee is also responsible for managing trust investments and acting in the best interest of the beneficiary. 

For these reasons, a professional trustee might be a prudent choice for administering a special needs trust, or at the very least co-administering it with a family member to ensure full legal compliance. 

To discuss these and other legal issues surrounding SNTs, including which type of trust should be used in your situation, consult with your special needs planner.

Duel Eligible – Special Needs Plans (D-SNP) are not available only for special needs planning for disabled people.  It is the fastest growing component of health insurance for concurrently eligible insureds having both Title 2 and Title 16 eligibility which triggers Medicare and Medicaid health insurance.  The term “Special Needs Plans” refers not to the disability or “special needs” of the insured, but to the requirement in the 2010 Affordable Care Act for CMS to seek maximum coordination between Medicare and Medicaid for individuals insured by both programs simultaneously.  

Private insurance companies spend huge television budgets to attract individuals to their Medicare Advantage plans.  Approximately 49% of Medicare beneficiaries elect Medicare Advantage plans.  

Recent history.  In Florida there are over 180,000 people whose Title 2 retirement or SSDI check was less than the SSI Federal Benefit Rate, thus entitling the person to receive two checks each month, the Title 2 check plus the Title 16 Supplemental Security Income check.  Receipt of each check triggers two separate health insurance programs.  Experience had shown that having two separate insurance plans – one for Medicare and one for Medicaid – often led to missed opportunities to provide the best care due to lack of coordination between them. 

Florida ’s Agency for Health Care Administration (AHCA)response was to accept the CMS invitation to require Medicare Advantage plans seeking additional insureds was to require that they cannot solicit individuals who also had Medicaid into their D-SNP plans unless the private insurance company also became a Florida Medicaid Managed Care insurer. This resulted in Florida becoming one of the earliest adopters of CMS’s Fully Integrated Duel Eligibility (FIDE SNP) plan in 2022.  For example, Aetna insurance, a major player in the Medicare Advantage world, was advised by Florida AHCA that they could not recruit duel eligible insureds unless Aetna also became a Florida Medicaid Managed Care organization. 

Low-income individuals eligible for Medicare Savings Programs for example QMB, are designated as potential duel eligible individuals who can join a FIDE Duel Eligible Special Needs Plan.  In addition, the state can opt to buy-in certain high use Medicaid insureds into Medicare for the cost of the Medicare premium.

What benefit does the State of Florida receive from promoting D-SNP?  The answer lies in its funding responsibilities.

Medicare Advantage plans are funded 100% by payment by the federal government at approximately $950 per month to the private Medicare Advantage insurance companies who agree to provide in Medicare Part C all the services to the insureds that the insureds would receive if they maintained their Medicare Parts A and B. 

Medicare is primary insurance while Medicaid is the payor of last resort.  

Medicaid potentially requires the State of Florida to pay up to a maximum of 50% of the insureds’ claims under the federal/state joint Federal Medical Assistance Percentage (FMAP) for Medicaid.  Florida, being relatively poorer than the majority of states, is currently under a 57% federal, 43% state split. Before Medicaid Managed Care, the fee-for-services costs could be astronomical to the state, as was the Medicaid lien at death of the SNT beneficiary.

By encouraging maximum participation in Medicare Advantage, and with Medicare being primary, the state’s financial responsibility shifts dramatically in its favor.  

Under the D-SNP program, the federal government pays the Medicare Part C insurance company, and the state pays a much smaller additional premium of approximately $200 per month to the same insurance company to provide Medicaid services.  The state’s contribution each month then does NOT depend on the patient’s actual medical expenses at all.  The private insurance company provides all the mandatory Medicare and Medicaid services needed by the individual. The state’s total outlay is $200 per month per patient.

The result is shifting the responsibility for some insureds from 43% Medicaid where the state pays a portion of primary care, to Medicare where the state pays nothing.  The state’s obligation is a maximum of $200 per month to assure 100% coverage for hospitalization, physicians, labs, prescription costs (with no hole in the donut issues), and related services.

What is the advantage of D-SNP for SNT beneficiaries? The answer lies in the expected Medicaid lien at death, an important consideration by some clients before they agree to put excess resources/assets into an individual Special Needs Trust.

Before Medicaid Managed Care, neither beneficiaries nor their attorneys had no idea what the client’s Medicaid lien would be at death. If the insured now becomes a member of a D-SNP plan, the attorney can advise the client that the lien at death is repayment to Florida of the $200 monthly premium from the date of funding the d4A SNT until their death.  It is not the repayment of the medical services used at all.

How does the attorney apply for D-SNP?  The attorney doesn’t! Google D-SNP in your county. Competent clients can contact the various private insurers offering D-SNP plans.  The insurance company staff do the applications and assure coverage for those eligible.  If the client wants to compare various insurance company plans in any county, but doesn’t want to contact them individually, contact an independent insurance broker.

D-SNP insurers offer everything that Medicaid does, plus often extra dental, vision and hearing benefits, other features such as transportation, over the counter medications, and a personal care team. The personal care team for Aetna, for example, consists of a care coordinator, a nurse care manager, a member advocate and a social worker. Clients report that the social workers are quite aggressive about making the client get up to date vaccinations, lab tests for diabetes, and annual checkups.  That’s the secret to keeping insurance costs down – early identification and treatment while problems are small.

“Social Security among survey’s worst federal workplaces”

Repost from Washington Post, May 20, 2024

A survey of more than 1 million federal employees reflects
the low morale of many workers.

Overall, the federal government scored 65.7 out of 100, a 2.3-point
increase over 2022. Unfortunately, for their employees and customers, some
workplaces were well below that. The Social Security Administration (SSA)
was at 52.1.

Building on lessons he learned as Baltimore’s mayor and Maryland’s
governor, SSA Commissioner Martin O’Malley is frank about the problems he
faced when he joined the agency in December.

“You know, the president didn’t ask me to come here … because the
agency was doing well,” O’Malley said by phone. “I’m here because he saw
what had happened when Congress reduced our staffing to a 25-year low,
even as the number of customers we serve has climbed and will continue to
climb to an all-time high.”

One of the first things he did after taking office was to meet with SSA
staffers around the country in “mayoral-style town halls,” O’Malley said. “I

The annual Best Places report is produced by the Partnership for Public Service and Boston Consulting Group, using data from the Office of Personnel Management’s Federal Employee Viewpoint Survey. Agencies are ranked by engagement scores that approximate employee morale. The Partnership says
the scores reflect “the commitment of the workforce, its job and organizational satisfaction, and the willingness of employees to put forth discretionary effort to achieve results.”


Among the 1,600 employee responses was a complaint about an
agency form that had clients separately click responses to 41 questions about
their money. O’Malley remembered one Boston staffer saying, “’My firstborn
for a ‘no to all’ button.’ And so, within two weeks, we got that done.” This is an example of a small change making life easier for employees and customers. Staffers are “thrilled with actually being able to serve the public,” O’Malley said. “They are win-wins. You improve the employee experience, you’re improving customer service.”

American Federation of Government Employees (AFGE) officials agree
with that. Union leaders, strongly critical of agency leadership in the past,
acknowledge positive changes under O’Malley, while calling for continued
improvements.

“SSA employees have been and remain chronically overworked and
overwhelmed due to years of underfunding and understaffing, while their pay
and benefits are uncompetitive compared to other agencies and employers,”
said a statement from the AFGE SSA General Committee. But it praised O’Malley for listening to workers, streamlining work processes, improving training “and making a real effort to improve their working conditions.”

Woman in her 30s wearing a neck brace and sitting in a wheelchair alone outdoors.If you have a loved one living with a disability, you should be aware of the signs that these individuals may be facing abuse or exploitation in the guardianship system.

Legal Guardianship

An individual living with certain disabilities may benefit greatly from having a legal guardian. (Note that some states use the term “conservator” rather than guardian.) If a person with the disability cannot make decisions crucial to their well-being, a guardian can support them. Guardians are responsible for serving in the best interest of the person with the disability, their ward. 

A guardian or conservator can assist the ward in many areas of their lives. This may include managing the ward’s assets or securing housing that suits their unique needs. Different levels of guardianship can dictate what level of control a guardian has over their ward. 

Downsides of Guardianship

The process of appointing a guardian or conservator can be time-consuming and costly. It may also require ongoing court supervision. Although this can be beneficial for preventing abuse, it can also make management of assets somewhat cumbersome. 

A guardianship can sometimes also prove more restrictive than necessary. In some cases, a guardian or conservator may have control over their ward’s personal decisions. You may recall when Britney Spears accused her father (and conservator) of having too much control over her life and her assets. Fortunately, alternatives to guardianship are available in many states, including limited guardianships and supported decision-making.

Sadly, some people serving as guardians, even family members, may take advantage of their wards. People with disabilities can be more likely to suffer physical, mental, financial, and other types of abuse than others. Certain impairments might prevent someone from protecting themselves from physical abuse. Mental illness could lead an individual to be more trusting of those who are seeking to exploit them financially. 

The bottom line is that people with disabilities, as well as their friends and families, need to know how to recognize and combat abuse.

Signs of Abuse

Abuse can occur despite your best efforts, so it pays to be on the lookout for signs that someone is taking advantage of a person with disabilities. Here are some things to look for:

Physical Abuse

  • Unexplained bruising or other injuries
  • Preventing the ward from seeing their doctor
  • Poor hygiene
  • Improperly cared for injuries or infections
  • Dehydration
  • Malnourishment

Financial Abuse

  • An unfamiliar person brings the person with disabilities to the bank
  • The individual with the disability cannot explain where their money goes
  • Bounced checks or unauthorized withdrawals
  • A caregiver or family member isolates the person with disabilities from other family members or friends

Emotional Abuse

  • Isolating the ward from their loved ones, or preventing them from receiving mail or phone calls
  • Sudden change in behavior or increased emotional distress
  • Depression
  • Anxiety

Preventing Abuse

The best way to prevent abuse in the first place is to remain active in your friend or loved one’s life. If a person with a disability lives in a group home or nursing facility, consider visiting regularly. This can give you an opportunity to spot signs of abuse quickly. 

Get to know your loved one’s guardian and caretakers if possible. The more tuned into you are to a ward’s life, the more likely you’ll be able to put a stop to problems before they become more serious.

If someone you care about with disabilities has access to a significant amount of money, you may consider creating a special needs trust for their benefit. This can help protect their finances.

What Is a Special Needs Trust?

A special needs trust is a type of trust that can help a person with disabilities pay for certain expenses. With this trust, an independent trustee manages funds in the trust. They can serve as a buffer between the person with the disability and those who may be looking to take advantage of them.

Available Resources to Report and Stop Guardianship Abuse

With the intervention of a court, it is possible to remove a guardian or limit a guardianship. This may be necessary when a guardian is abusive or fails to carry out their duties. 

If you suspect that a disabled loved one is a victim of abuse, immediately document your concerns and contact the proper authorities. For guidance, reach out to your special needs planning attorney as soon as possible. They have expertise in the guardianship laws specific to your state. 

The following resources also may prove essential:

Do not hesitate to speak up if you recognize signs of abuse; your loved one’s life could depend on it. Remember that the best prevention is to be involved from the start.

When an unexpected inheritance or lawsuit proceeds are received by a person with disabilities who is on SSI-disability or SSI-elder benefits, the event calls for some special needs planning to continue the SSI monthly checks and Florida Medicaid without going over the $2,000 resource limit. Many think the best or only answer may be an individual or pooled Special Needs Trust. That is not the case. This practice note discusses the advantages of a room and board contract for a term of months or for lifetime, can in some circumstance have significant cash and other benefits over a personal services contract or a special needs trust.

In 1999 the Social Security Act was changed to impose an Supplemental Security Income (SSI) transfer of resources penalty for transferring assets for less than fair market value (FMV) for a period of months capped at 36 months. Prior to that persons with disabilities could simply give away excess resources, continue to receive SSI which would trigger continuation of Medicaid. The Social Security Administration (SSA) immediately added Section SI 01150.005 to the Program Operations Manual System (POMS) to explain how the agency is to assess fair market value and delineate the exceptions to the transfer penalty, giving the special needs attorney some additional and often better tools to maintain public benefits. SSA defines fair market value as “the current market value (CMV) at the time the resource transfers,” noting that CMV is the going price that the resource could be reasonably be expected to sell on the open market in the local area involved. 3 SSA also defines “compensation” as the cash or other valuable consideration provided in exchange for the resource, paid by cash or real or personal property received in exchange.

The value of the compensation received by the SSI claimant is determined by looking at the legally binding agreement between the SSI claimant-transferor and the person or entity receiving the resource. Particularly important is the POMS statement that “The transferor may actually receive the compensation before, at, or after the actual time of transfer.”

Inkind support and maintenance (ISM) may provide the compensation for the transfer valued at its full current market value multiplied by the length of time for which the ISM is to be provided under the agreement. SSA provides a helpful example of a contract for a period of years:

Example: Determining whether ISM applies:

Mr. Thomas transfers $30,000 cash to his sister based on a written contract that she would provide him with food and shelter for 5 years. The sister values the food and shelter at $500 per month. The CR develops Mr. Thomas’ living arrangements and determines that he has a flat fee arrangement with his sister and required to pay $500 per month. The food and shelter for 5 years is worth $30,000 (5 years x $6,000 per year). Therefore, Mr. Thomas received FMV for the $30,000 he transferred. ISM is not counted because the Mr. Thomas has prepaid for his food and shelter with the $30,000 he transferred. SSA Staff are instructed to use the actual value of the ISM as defined in the standard food and shelter instructions and not the one-third reduction or presumed maximum value (PMV) to set the value of the compensation in the agreement. Staff are further instructed to obtain a statement from the ISM provider to confirm that the ISM is being provided using SSA’s form 8011-F3 (Statement of Household Expenses and Contributions).

What about a legally binding agreement that in exchange of some real property, personal property or cash, the SSI claimant will receive ISM for his or her life? Staff are instructed to multiply the yearly CMV of the ISM provided by the “Years of Life Remaining” corresponding to the SSI claimant’s age (or next lower age) found in POMS SI 01150.005F. Note that this chart may be different that the life expectancy charts in the Florida Medicaid Manual. SSA provides two useful examples showing the effect of an agreement to provide ISM for life: Example 1: Total value of ISM results in FMV compensation Valerie Payne transferred nonhome real property valued at $185,000 to her sister. As compensation, her sister agreed to provide Ms. Payne with room and board in the sister’s home for the rest of Ms. Payne’s life. ISM development showed that her sister’s total household expenses were $1,500 per month. The household consisted of 3 persons, including Ms. Payne who was age 53 at the time of the transfer. The CMV of the ISM was $6,000 per year ($1,500/3 = $500 per month X 12 months = $6,000). Then, $6,000 X 31.61 (average years of life remaining at age 50) = $189,660 compensation. In this case, Ms. Payne received FMV for the transferred resource. We do not count ISM because the individual prepaid for her own food and shelter with the value of the home she transferred. For procedure on determining an individual’s contribution
toward household operating expenses, see SI 00835.480D.

Example 2: Total value of ISM results in uncompensated value

Assume the same case facts as Example 1 except that Ms. Payne is 80 years old at the time of the transfer. As in Example 1 the ISM is worth $6,000 per year. At 80 years of age the life expectancy table indicates 7.16 years. Multiplying 7.16 years times $6,000 results in compensation of $42,960. In this case there is uncompensated value of $142,040 ($185,000 minus $42,960). Therefore, Ms. Payne is subject to a period of ineligibility for SSI because she transferred the house for less than FMV. The agreement between Valerie Payne, the SSI claimant, and her sister could arise in a couple of ways. Perhaps Valerie and her sister were living together for years, and Valerie then inherited a home (described in the example as “nonhome real property”) as an inheritance from another person. Or perhaps Valerie was living in her own home, and as she became more physically wanted to move in with her sister who could help care for her. Her former home then became a countable resource since it was no longer her primary residence.
In all likelihood, before the ISM agreement and property transfer, either scenario would see Valerie’s SSI check go down due to her inability to pay her fair share of her sister’s household expenses.

SSA is required to deducted for the ISM received by her sister shouldering disproportionately more of the household expenses. This one-third loss of Valerie’s SSI check amounts to approximately $3,000 per year. At this point Valerie decides to sell for cash or transfer the real property and move with her sister. What are the options?


Option 1.

Just give the money to her sister. If Valerie sells the house and receives the $185,000 sales proceeds and just gives the money to her sister, with no agreement for anything in return, the transfer penalty applies in full. The amount transferred ($185k) divided by the Federal Benefit Rate (currently $794 per month), produces the number of months that Valerie would receive no SSI checks at all, but capped at a 36 month penalty. The amount transferred in this case results in a penalty
calculation of 232 months but capped at 36 months causes the loss of benefits from the date of transfer for three years. While that choice is only a loss of approximately $10,000 per year tax free for three years, or $30,000 total, the more significant potential loss is the SSI-related Medicaid health insurance coverage. There are no income tax consequences to the sister since it is a gift.

Option 2.

Use a Special Needs Trust. If she sells the home, receives $185,000 cash and puts
the funds in a special needs trust with the trust paying Valerie’s share of the household expenses, the trust’s contribution triggers the ISM reduction anyway for payments for food and shelter. She still loses over $3,000 per year in tax free SSI benefits by having a trust because her SSI check is reduced from $794 to $530 per month. And she incurs attorney fees, trustee fees, and CPA fees, and if she uses a
pooled or individual SNT, and a potential startup fee as well. The result is that Valerie has more expense and less tax-free income. At 31 years of life expectancy the one-third loss of tax free SSI income amounts to $93,00 alone, and the trustee fee could amount to $172,000 (at 3% over 31 years).

Option 3.

Use a personal services contract. Instead, Valerie decides to engage in some other
special needs planning and transfers the sales proceeds to her sister in an agreement for personal services to be received in the future. Such Personal Service Contracts (PSC) are specifically allowed under the same POMS. 8 How to draft a proper PSC is laid out in a SSA Atlanta Regional Chief Counsel Precedent (opinion letter). The amount the sister receives is IRS-taxable income of $185,000 which results in a potential substantial loss of $36,011 if using the standard deduction.


Option 4.

Use the ISM contract for room and board detailed in the POMS above. The benefit
of using the SSA-suggested option of transferring the sales proceeds, or transferring title to the non-home property, to the sister would include avoiding:
the ISM deduction from her SSI checks; attorney fees for trust preparation; and
lifetime trustee fees and expenses. Once received, the sister does not have to account further for the funds. She is required under the contract to provide food and shelter, but not maintain an account to do so. Ongoing accounting
fees are also eliminated. In addition, three separate tax experts have advised our office in three separate cases that the room and board contract to share food and shelter expenses results in no federal income tax consequences for the person who receives the funds and agrees to provide the food and shelter. Thus, the $36,011 income tax loss by using the Personal Services Contract is eliminated by the ISM agreement.

Special needs planning should not be one shoe fits all, nor should special needs planners apply only one single technique to a particular SSI claimant’s situation. Combinations of some appropriate spend down (paying off credit card bills, paying down mortgages, purchasing new appliances, vehicles, clothes, computers, dental care, and infinitely more), ABLE accounts for those eligible, some funds in ISM contracts, etc., can make clients extremely happy to have a special needs plan tailored to meet their individual needs.

Room and board or ISM contracts can effectively handle small or larger amounts of funds since such contracts can be for a term of several months, several years or as described SSA in the POMS’ example, for a lifetime. Additionally, room and board contracts increase the SSI check over the use of Special Needs Trusts by legally avoiding the monthly loss of full SSI benefits due to Inkind Support and
Maintenance deductions. Such contracts are not appropriate in every case, but where they are, the advantages over SNTs and PSCs are substantial.


1 Foster Care Independence Act of 1999 (P.L. 106-169).
2 Florida Statutes §409.903(2) enacted pursuant to the Social Security Act, Section 1634.
3 SI 01150.005.B.1.
4 SI 01150.005.B.2.
5 SI 01150.005.C.2.
6 POMS SI 00835.001
7 POMS SI 01150.005.D.3.
8 POMS SI 01150.005.D.4
9 PS 01820.011 Florida, A. PS 14-102 Supplemental Security Income Resource Determination—Validity Of Personal
Services Contract.