Spouses and their children who receive SSI
and/or MediCal needs based benefits, and are part of a divorce, may encounter
complications involving the receipt and/or payment of either spousal or child
support and their continued eligibility to receive needs based government
benefits. The receipt or payment of such support payments create special
issues where Special Needs Trusts (“SNT”) are involved.
Often a SNT is established during the divorce
proceedings to receive the support payments. Otherwise the receipt of
either spousal or child support would negatively affect continued eligibility
for such benefits. A first party SNT can be established either by an
authorized person — a parent, grandparent, or conservator — or by way of a
court order, although no specific authority exists for a family court to issue
such an order.
Any child support payments awarded to a
disabled child receiving needs based government benefits will have to be
irrevocably assigned to a first party SNT. Otherwise payments will count
as income to the child and negatively affect needs based government
benefits. The assignment implicates conflicting federal and state
laws. These are best harmonized when
both spouses consent to awarding child support payments to a first party SNT
for the child’s benefit. Payments only, and not the underlying right to
such support, can be assigned.
Now consider a beneficiary of an SNT who also
pays spousal and/or child support. Do the SNT distributions by the
trustee count as income when the court sets the amount of support that the SNT
beneficiary must pay? Furthermore, may the SNT trustee pay such support
payments, on behalf of the beneficiary, to his or her spouse and or child?
A spouse’s income is considered by the court when computing the amount of
the support obligation that they must pay How then does being a
beneficiary of an SNT impact the calculation of that obligation? This is
an unsettled legal issue. That said, given that trust distributions are
fully discretionary with the SNT trustee it is unlikely that income generated
inside the SNT will count unless and until actual distributions made on behalf
of the beneficiary.
Next, under California law, the Trustee of an
SNT can be forced to pay such obligations owed by a beneficiary to his or her
ex-spouse or child because the right of an ex-spouse or child to receive
support payments is safeguarded. That said, however, in the case of a
first party SNT (i.e., one created on behalf of a disabled person to receive
payments or assets belonging to the beneficiary) this safeguard may conflict
with the federal requirement that a first party SNT be solely for the benefit
of the beneficiary and no one else. Distributions by the trustee to pay
support obligations owed to the beneficiary’s spouse or child might arguabley violate
this requirement and so jeopardize the SNT’s validity under the very
federal law that authorizes the creation of first party SNT’s.
Accordingly, whenever possible, such support obligations should be paid using
other income, including the SSI income, received by the beneficiary. The
trustee of the SNT can then make offsetting distributions on behalf of the
beneficiary to cover unmet expenses.
The foregoing discussion shows the
complications in a divorce where either spouse and/or any disabled children
receive needs based government benefits. It is crucial that either the
receipt or payment by a beneficiary of a SNT of any spousal or child support be
implemented in a manner that preserves SSI and Medi-Cal benefits. In such
divorces, therefore, the concerned parties may wish to involve a trust law attorney
knowledgeable in special needs trusts before the family law court issues an order.