Providing Customized Legal Solutions Since 1979

Do You Need a Special Needs Trust if You or a Family Member Are Receiving Social Security?

On Behalf of | Aug 15, 2023 | Firm News

The answer is that it depends.  When this question comes up with clients because they are receiving an inheritance or litigation settlement proceeds, my first question to them is what type of Social Security benefits are being received?  If it is SSDI (Social Security Disability Income), then generally no.  If it is SSI (Supplemental Security Income), then generally yes.  If it is Social Security Survivor’s Benefits, then the answer is generally no.  For SSI recipients, a special needs trust will allow them to receive the funds and still qualify for SSI benefits, with some restrictions in the trust regarding how the funds can be used.

If my client does not know the type of benefits, I will ask them how much they receive each mother.  If the amount is over approximately $1,000 a month, then my guess is that the benefits are either SSDI or Survivor’s Benefits, since the maximum amount of SSI benefits for a single person in 2023 is ($1,133.73 a month [$914 federal benefit plus $219.73 California supplement]).  The monthly amount for SSDI and Survivor’s Benefits is typically more than the SSI payment.

If there is still some confusion, then I have my clients call 1-800-772-1213 and ask for form number SSA-2459.  This form is the Benefits Plan Query and will explain the type of benefits received.  Below is a basic discussion regarding the different types of benefits and is provided to give a simple overview only.

SSI benefits are needs based and require that the recipient be disabled and have $2,000 or less in non-exempt assets.  Exempt assets like a personal residence or a vehicle are examples of what is not included in that $2,000 limit.  Inheritance, gift or litigation settlement proceeds are no exempt assets and if the amount is over $2,000, then the SSI benefits will be reduced or discontinued.

SSDI benefits are based on an individual’s ability to work due to a disability and earn income.  You qualify for these benefits if you have worked and paid into the disability system.  The Social Security Administration is not concerned about the value of your assets, but your income.  Receiving an inheritance, which is the common reason why these questions come up, is not considered earned income, so its receipt will not disqualify someone from SSDI benefits.

A disabled person may receive Survivor Benefits if their parents paid into the Social Security system and one is either retired or deceased.  If that parent has a child who is 18 or older and has a disability that began before the age of 22, then the child is entitled to receive Survivor Benefits.  As with SSDI, the receipt of inheritance does not affect the person’s eligibility to receive Survivor Benefits because it is based on the person being disabled and their parent paying into the system.  The disabled child is entitled to receive up to 75% of the parent’s basic Social Security benefit.

I have a lot of clients who receive In-Home Supportive Services (IHSS).  They are eligible because they are either 65 or older, disabled, or blind and live in California.  If a parent is unable to work because they are caring for their disabled child, then that parent can be paid to care for the child through IHSS.  If the individual qualifies for IHSS, but is not receiving SSI, then the receipt of an inheritance or litigation settlement proceeds will likely not affect that qualification.  This is because they qualify for IHSS through Medi-Cal which has different eligibility requirements discussed below.

There are different ways to qualify for Medi-Cal.  For adults between 19 years and 64 years old, the controlling factor is the income earned.  This is called MAGI Medi-Cal and MAGI stands for Modified Adjusted Gross Income. There is no asset test for MAGI Medi-Cal.  Seniors and disabled individuals, until January 1, 2024, must go through an asset test and have less than $130,000 in assets to qualify for Non-MAGI Medi-Cal.

If you or a family member are receiving an inheritance or proceeds from litigation and you or they are receiving some sort of governmental assistance, then it is important to talk with someone knowledgeable about the different types of benefits to make sure there is no negative impact on those benefits.  A special needs trust may allow the receipt of those funds AND preserve the governmental benefits.