Assets held in a properly drafted special needs trust (SNT) will not affect the beneficiary’s Supplemental Security Income (SSI) or Medicaid benefits. However, if SNT funds are disbursed in a manner that violates SSI or Medicaid rules these important public benefits may be reduced or even eliminated. It is important for the Trustee of a SNT to (1) understand the various types of public benefits the beneficiary receives, and (2) what the SNT can pay for without negatively impacting any means-tested benefits, such as SSI and Medicaid.
Note, Arizona’s Medicaid benefits are provided through the Arizona Health Care Cost Containment System (AHCCCS) which provides both traditional health insurance and long-term care insurance plans. AHCCCS’ long term care insurance plan is known as the Arizona Long Term Care System (ALTCS).

What Is a SNT?

A SNT allows a person with special needs to benefit from the SNT funds while still qualifying for means-tested public benefits, like SSI and Medicaid. A SNT can play an important role in providing financial security and lifestyle for an individual with special needs or disabilities.

There are several types of SNT’s which include first-party SNTs, third-party SNTs, or pooled trusts. Depending on the circumstances, one or more of these may be appropriate for you or your loved one. See our other blog articles and website for more information on the different types of SNTs.

What Special Needs Trusts Should Not Pay For

In general, no cash disbursements should be made to the beneficiary to make purchases on their own. Instead, a SNT trustee should pay for items directly to the vendor or provider. If an SSI beneficiary receives cash (or a cash equivalent, like a refundable gift card) from an SNT, their benefit can be reduced by $1 for each dollar received, up until the point that they lose SSI completely.

In addition, a SNT Trustee should also not pay for an SSI beneficiary’s food or shelter expenses as the beneficiary could lose up to one-third of their SSI benefit. Shelter includes room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, and garbage collection services.

As with anything, there are exceptions to general guidance. In some situations, the benefit to a beneficiary of paying for food or shelter expenses outweighs the impact of potentially losing government benefits. Moreover, there may also be some workarounds available. Because each SNT and its beneficiary’s circumstances are different, it is critical that the SNT Trustee seek advice of an experienced special needs planning attorney when considering making any disbursement that could lead to a reduction of public benefits.

Lastly, the SNT Trustee should never make any distribution that is not for the sole benefit of the SNT beneficiary. This is a hard and fast rule. Disbursements must primarily and directly benefit the beneficiary and only indirectly benefit others.

What Can a Special Needs Trust Pay For

Unlike many other states, Arizona has a state law which sets forth what a SNT can pay for. For Arizona SNT beneficiaries who receive AHCCCS health insurance and/or ALTCS long term care benefits, some examples of allowable uses are as follows:

• Activities
• Entertainment
• Books, newspapers, and magazines
• TV, internet, and phone
• Education or training
• Insurance, subject to certain limitations
• Medical equipment or services not covered by Medicaid
• Electronics, computers, and software
• Transportation/travel costs
• Vehicle and maintenance or operation costs
• Household items and furnishings
• Home purchase
• Personal items, such as clothing
• Prepaid funeral or burial expenses
• Trust Taxes
• Care management
• Guardianship/Conservatorship fees and costs
• Trust administration expenses, such as legal and trustee fees

Whenever possible, the SNT Trustee should purchase an item or service directly. When a beneficiary needs to use the SNT funds (e.g., beneficiary purchases fuel for their vehicle), he or she may do so with a TrueLink card.

In general, a SNT can pay for most things a beneficiary might need to supplement their lifestyle, other than food or shelter.

Additionally, if the type of SNT is a first-party SNT, Arizona law requires a first-party SNT Trustee to obtain AHCCCCS’ advance approval for all SNT disbursements by giving AHCCCS at least 45 days to approve or deny the request. This is done by seeking AHCCCS’ approval of an annual proposed monthly budget, and on a case-by-case basis for any unanticipated disbursements that arise during the year which were not pre-approved on the annual budget. Nevertheless, a SNT Trustee may make an emergency disbursement and then give AHCCCS notice within 30 days of the emergency disbursement. Again, these AHCCCS reporting requirements only apply to first-party SNTs, and not third party SNTs.

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SNT administration is different from administration of any other type of Trust. In addition to the standard Trustee duties and responsibilities, a SNT Trustee also needs to understand how the beneficiary’s public benefits may be impacted by the method and/or purpose of SNT disbursement. The rules are complicated, so it is best to seek legal advice from an experienced special needs planning attorney before making disbursements to anyone. Note, typically the legal fees can be paid for by the SNT funds.

We routinely draft all types of SNTs and represent SNT Trustees. If you are considering use of a SNT for yourself or a loved one, or already have one and need advice regarding its administration, call our office at 480-922-1010 or email info@bivenslaw.com to schedule a consultation. Let us help you ensure the financial security and lifestyle for yourself or your loved one in Arizona with special needs or disabilities.