Dealing with Income Under New Federal Rules Governing Special Needs Trusts

HNWSpecial Needs Trusts for Minor Children and Adults

  • For decades, a Special Needs Trust (SNT) has been the primary planning tool to protect persons with disabilities. Funds held in an SNT are not counted as a resource of the beneficiary but may be used (at the trustee’s discretion) for the beneficiary’s benefit. A properly established and administered SNT maintains the beneficiary’s eligibility for means-tested public benefits while improving the standard of living afforded to the beneficiary by said benefits.
  • As previously stated in an earlier blog, the SSA is the federal agency that administers SSI. The federal policies governing SNTs are documented in the agency’s Social Security Program Operations Manual System (POMS). SSA describes the POMS as “a primary source of information used by Social Security employees to process claims for Social Security benefits.” A public version of the POMS is available online.

disabled personThe new SSA rules do not change a beneficiary’s income eligibility requirement.  Distributions of cash paid from a SNT directly to a beneficiary are considered unearned income and reduce the beneficiary’s SSI benefits dollar for dollar.

Another type of income that is affected by a SNT disbursement is called “in-kind support and maintenance”.  An SNT distribution of funds that pays for a beneficiary’s food or shelter is considered ISM. Even though ISM reduces an SSI recipient’s SSI benefits, it does not reduce them dollar for dollar as unearned cash does. Instead, the maximum reduction is subject a one-third reduction of the federal benefit rate.  Here’s an example.  If the SNT trustee pays $1,000 a month for e beneficiary’s rent, the beneficiary’s SSI benefits will be reduced by $277 month (assume SSI pays $771 per month divided by 3 equals $257 plus $20 income disregard equals a $277 reduction in the SSI amount).

However, SNT disbursements made directly to third-parry vendors that result in the SNT beneficiary receiving goods or services other than food or shelter typically do not count as income to the beneficiary and do not affect SSI eligibility.  For example, if an SNT trustee pays $100 per month directly to a cell phone company to pay the beneficiary’s cell phone bill, it has no impact on the beneficiary’s SSI eligibility.  SNT trustees therefore usually structure disbursements by purchasing goods or services for the beneficiary’s benefit directly from third parties.

To discuss your NJ special needs trust matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq., of Hanlon Niemann & Wright, a Freehold Township, Monmouth County NJ Special Needs Trust Attorney

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