Social Security Disability Insurance (SSDI)

programs are the largest of several federal programs that provide income support to people with disabilities.

SSDI is not based on financial need. It is available to individuals who:

  • are (or expect to be) unable to engage in “substantial gainful activity” for at least 12 months; and

  • are “fully insured” (paid into Social Security for at least 40 quarters); or

  • were disabled before age 22 and have a retired, disabled or deceased parent who is fully insured (benefit is 50% of a disabled or retired parent’s Social Security benefit or 75% of a deceased parent’s benefit).

Supplemental Security Income (SSI)

is a federal program that provides cash to help low-income elderly, blind and disabled people meet basic needs for food, clothing, and shelter. Eligibility is based on financial need.

SSI is available to individuals who:

  • are over age 65, blind or disabled (using the same definition as SSDI); and

  • have no more than $2,000 countable assets ($3,000 if married); and

  • have monthly income less than the maximum federal benefit rate (FBR), which for 2021 is $794/ month for an individual.

There are various credits and/or reductions, which are described in “Administration of Special Needs Trusts” below.




Income and resources of the spouse and/or parent of a minor child are attributed to the claimant. If an individual is eligible for at least $1 of SSI, he or she is automatically eligible for AHCCCS (Medicaid) health insurance.

SSI is funded by general tax revenues, not by Social Security taxes.

A combination of SSDI and SSI

is available to someone who is eligible for SSDI, but whose monthly benefit amount, based on the applicable work credits, would be less than the FBR.

The first $20 of the SSDI benefit amount is disregarded in setting the SSI benefit amount. As a result, an individual in this category is eligible for a maximum benefit of $814 for 2021.

The individual is eligible for Medicare, based on the eligibility for SSDI, and AHCCCS. The SSI portion of the benefit does require financial eligibility.

AHCCCS

(the Arizona Health Care Cost Containment System), pronounced

AC-cess,

is Arizona’s Medicaid program that provides medical insurance for children and adults who meet specified income requirements.

As a result of Medicaid expansion under the Affordable Care Act, AHCCCS is available for adults whose income is 133% of the federal poverty level (FPL). For 2021, the FPL for a single adult is $1,056/month.

There are generally no resource limits. For purposes of AHCCCS only, distributions from trusts are not counted as income that would affect eligibility.

ALTCS

(the Arizona Long Term Care System), pronounced

ALL-tex,

provides medical and long-term care benefits to individuals who are over 65 or disabled. In addition, the person must be unable to perform at least two activities of daily living (the medical criteria are somewhat relaxed for someone who has a qualifying developmental disability).

The individual’s income limited to 300% of the FPL ($2,382 in 2020). A married applicant may have a higher income if the couple’s income does not exceed two times that amount. Excess income can be protected in a “Miller Trust,” as described below.

Countable assets are limited to $2,000 for a single applicant. The spouse of a married applicant can retain assets worth up to $130,312 in 2021, and additional planning techniques can enable married applicants to retain more than i this amount. Individuals who are eligible for ALTCS are automatically eligible for AHCCCS.

ALTCS SPECIAL TREATMENT TRUSTS



The Omnibus Budget Reconciliation Act of 1993 (“OBRA ‘93”) established the principle that the transfer of assets into a trust would trigger a Medicaid penalty, and it increased the eligibility “lookback” period from three years to five. However, OBRA ‘93 also created exceptions for three types of “special treatment trusts”:



  • Irrevocable trusts that hold only the income of an ALTCS beneficiary,



    to the extent that income exceeds the Income cap. This is commonly referred to as a “Miller Trust.”




  • Irrevocable trusts held as part of a pooled trust arrangement,



    which provide that the beneficiary’s share of the trust will repay the Medicaid agency, to the extent that the amounts remaining in the beneficiary’s share are not retained by the trust. This is a good option for beneficiaries with a small amount of funds to protect, and/or who are unsophisticated about the administration. PLAN of Arizona is the primary Pooled Trust in this area. Rules regarding distributions are the same as those for individually held self-settled Special Needs Trusts.




  • Irrevocable special needs trusts



    (discussed below) created before the beneficiary (who must be disabled, as defined below) reaches age 65.




(The Foster Care Independence Act of 1999 created similar transfer penalties for SSI recipients, with exceptions for the same three types of trusts.)



Irrevocable Special Needs Trusts.



Such trusts are created with the beneficiary’s own funds (including accident settlements or bequests). Trusts that also include income or resources of another person, including a spouse or other family member, lose their special treatment status.




The beneficiary must be disabled according to the Social Security Administration, medically eligible for ALTCS, or determined to be Seriously Mentally Ill (SMI) at the time the trust is created.



The trust must be established by a parent, grandparent, or guardian (but not a conservator). Pursuant to the Special Needs Fairness Act, enacted on December 13, 2016, if a disability does not affect mental capacity, the disabled beneficiary can create the trust him or herself (although Arizona has not yet confirmed recognition of this change to the federal law).



The trust can be created by the Court via Single Transaction Authority, per A.R.S. §14-5409. The court should also be asked to approve the creation of a trust by a parent or grandparent of someone who lacks capacity to consent; this approval is not required when the trust is created by the beneficiary or a guardian.



Similar to the pooled trust (the second type of trust bulleted above), the irrevocable special needs trust must state that, after the beneficiary’s death, the applicable Medicaid agency will be repaid the amounts that were paid on the beneficiary’s behalf after the creation of the trust, and after age 55. The repayment is divided among all states in which the beneficiary lived and received benefits.

THIRD PARTY OR NON-GRANTOR SUPPLEMENTAL SUPPORT TRUSTS



This type of trust, which does not include the payback requirements, is not discussed or described in federal or state statutes, because it is not created by the person who is otherwise eligible for benefits. Its characteristics include the following:



  • The trust must be irrevocable.



  • The trust must have been created with someone else’s money. If income or assets of the person who is eligible for benefits are included in the trust, it would then be counted by the benefits agency.



  • It is often testamentary, but it can be created during the grantor’s lifetime.



  • The beneficiary should not have Crummey powers (a Crummey trust is a trust for the benefit of individuals into which gifts are made in a manner qualifying them for exclusion from the unified gift and estate tax).



  • The beneficiary must not be able to exercise any administrative control over the trust.



  • The trustee should not be the spouse.



  • The beneficiary can have no authority to select or change the trustee, a trust protector, or anyone who makes decisions about the administration of the trust.



  • The trust should state that the grantor’s intent is to supplement, and not replace, public benefits for which the beneficiary is otherwise eligible. If it is merely a discretionary trust, without this language, the trend is to determine that the trust is available to the beneficiary, because the trustee must reasonably exercise its discretion for the beneficiary.



  • The trust should not include a HEMS (health, education, maintenance and support) standard or reference any particular distributions or categories of distribution. Otherwise, distributions that “should have” been made for those purposes may be counted as resources or income to the beneficiary.

ADMINISTRATION OF SPECIAL NEEDS TRUSTS (FIRST OR THIRD PARTY)



Administration of special needs trusts is governed by the Social Security Program Operations Manual System (POMS).



While the corpus of the trust is not counted as a resource of the beneficiary, distributions may be considered as income, which could affect eligibility and/or the amount of benefits.



Distributions of cash or anything that can be readily converted to cash (such as prepaid debit cards or gift cards) are counted as income.



  • SSI excludes the first $20 cash income, with additional cash income affecting eligibility for benefits or, if the total is less than the maximum benefit amount, reducing benefits on a dollar-for-dollar basis.



  • ALTCS does not exclude the first $20; all such distributions are considered income that affects eligibility for benefits and the amount of the “share of cost” that the beneficiary must pay toward his her her care.




(The



True Link Card



is essentially a debit card but is a defined exception, as long as it is not used for food and shelter.)




Distributions directly to the provider for food and shelter (called In-kind Support and Maintenance or ISM) are counted as income.







Food




includes groceries and meals from restaurants.



Shelter



includes room (i.e., in someone else’s home, at no charge), mortgage, rent, property taxes, homeowner’s insurance, electric, gas, water, and sewer and trash collection,




but not




internet, cable or satellite charges, telephone or inside or outside maintenance and cleaning.




Receipt of ISM reduces the beneficiary’s SSI benefit by one-third (less $20, if the trust is providing food or shelter, but not both). Having the trust own the home in which the beneficiary resides is not considered ISM, since the beneficiary holds a beneficial interest. (AHCCCS requires that title to the home be held in the name of the trust, rather than by the beneficiary.)



Distributions for purposes of supplemental needs are not considered income.



These include education, entertainment, transportation (including a vehicle), internet or cellphone charges.




The trust can purchase a vehicle that will be titled to the individual but must retain a lien on that vehicle.



Other non-income distributions include:



  • healthcare costs, such as health insurance premiums and unreimbursed medical expenses; and



  • personal care services that are determined to be medically necessary by the beneficiary’s physician, including physical therapy, massage therapy, adaptive equipment, and caregivers or home health aides (a relative, including the spouse, parent or adult child of the beneficiary, can be paid to provide these services, as long as the charge does not exceed the SSA’s fee schedule).



Both SSI and AHCCCS require that, in order to retain special treatment status, distributions from a first-party trust be for the “sole benefit” of the beneficiary.




If the beneficiary does not live alone, distributions from the trust for household expenses can be only for the beneficiary’s



pro rata share.



AHCCCCS seems to recognize that other family members may live in the beneficiary’s home, but both AHCCCS and SSI require non-related occupants to pay their fair share (unless it is part of their compensation as a caregiver). SSI has historically been more strict but has recently relaxed its interpretation regarding household items used by multiple residents.




Other allowable expenditures from first-party trusts include:



  • taxes and investment fees;



  • reasonable professional fees;



  • spousal or family maintenance;



  • guardianship or conservatorship fees for the benefit of the trust beneficiary; and



  • prepaid funeral, burial and/or cremation expenses or an irrevocable policy for that purpose.



However, no such expenses can be paid after the beneficiary’s death to the detriment of AHCCCS’s payback provision.

ABLE ACCOUNTS



The Achieving a Better Life Experience (ABLE) Act of 2013, which was signed into law in December 2014, amended Section 529 of the Internal Revenue Code to permit individuals who are blind or who were disabled prior to their 26th birthday to create an account from which they can spend, save, and invest funds that would previously have been counted as disqualifying resources for purposes of public benefits.




The Arizona Department of Economic Security website includes a section (at



https://az-able.com/


) that describes the program in Arizona and includes the simple application process. See also our article, ”


Arizona ABLE Accounts: A Step Toward Financial Independence


.”



For the purposes of ABLE, disability is defined as currently receiving SSI or SSDI, having an approved condition (even if not currently receiving benefits), or having a written report from a physician indicating that the individual has an impairment that is medically provable, results in severe limitations in functioning, and is expected to last for at least 12 months. An official diagnosis before age 26 is not required.



Some ABLE highlights:



  • Accumulated funds of up to $100,000 are not counted as a resource by Social Security or ALTCS.



  • An ABLE account can be created by the individual, a person whose authority under a POA specifically authorizes the creation of an ABLE Account or a Guardian or Conservator.



  • Any combination of the individual, parents and other family members can contribute up to a total of $15,000 per year. If the individual is employed, he or she can contribute an additional $12,490 of income. The funding is not a transfer that could result in a penalty period. The account can be funded from a first- or third-party trust.



  • Funds used for qualified disability expenses, as defined by Social Security, are not counted as income.



  • Funds withdrawn from an ABLE account for housing expenses are not considered ISM if they are used within the same month that they are withdrawn.




  • Best practice is to make the payments directly from the account, or by using the



    STABLE Visa Card



    that is tied to the ABLE account.