An individual who receives Supplemental Security Income (“SSI”) receives a maximum of $866 a month in 2013. This amount is supposed to be enough to provide for all the food and shelter necessities of life. It includes rent, electricity, heat, and food. Not surprisingly, given the cost of living, many SSI recipients still rely on the generosity of family or special needs trusts to make ends meet. Let us examine some common arrangements and how they affect their SSI eligibility.
Consider an SSI recipient who lives alone but receives support from others who pay some or all of their rent, utility and food expenses. Such “in kind” support that avoids cash payments to the SSI recipients is called “in kind support and maintenance” (ISM). ISM reduces the amount of SSI dollar for dollar up to a presumed maximum value (the cap).
The presumed maximum value for 2013 is $256, roughly one third of the $866 maximum SSI allowed. Any support under $256 presumed maximum value results in a dollar for dollar reduction in SSI support. Clearly ISM support that reduces SSI dollar for dollar is not advantageous. But, ISM that exceeds the $265 presumed maximum value can be advantageous.
Consider an SSI recipient whose rent is $1,000 a month. If more than $256 of such rent is paid directly to the landlord on behalf of the SSI recipient from other people’s money, or money from a special needs trust, then the excess amount does not reduce the SSI payments whatsoever. This trade-off can allow the SSI recipient to live in much better circumstances if it does not totally eliminate his SSI.
Totally eliminating the SSI recipient’s SSI, however, would be disadvantageous because it may also eliminate categorical eligibility to receive Medi-Cal based on SSI eligibility. So anyone receiving $256/month or less in SSI must be careful not to lose Medi-Cal on account of receiving ISM.
Next consider an SSI recipient living in a shared living arrangement where utilities and food expenses are shared. Such shared living also constitutes ISM. However, the computation of the reduction in ISM is subject to the slightly different value of one third reduction rule (“VTR”). Here the maximum reduction in SSI is $236 for 2013 for an individual and around $350 for a married couple. That is, in a shared living arrangement, ISM reduces one’s SSI dollar for dollar up to the VTR maximum.
Now consider an SSI recipient who inherits a house or is the beneficiary of special needs trust that owns a house and allows him/her to live rent free. In the month the SSI recipient inherits the house or moves into the house owned by the special needs trust, as relevant, SSI will be reduced by the presumed maximum value. Both the inheritance and right to live in the house are treated as ISM (income) in the month received. Thereafter, there is no further reduction to SSI because the house is then treated as a resource (not as income). Under SSI rules a person’s principal residence (a resource) is exempt.
Whether it is better to transfer an inherited house to a special needs trust or keep it titled in the SSI recipient’s own named depends on the circumstances. If the SSI recipient does not outlive 55 then keeping the house in his/her name may be advantageous. A first party special needs trust requires that any SSI/Medi-Cal received by the beneficiary be paid back after the SSI recipient’s death using the trust assets. This payback requirement, however, does not apply to assets held in a deceased SSI beneficiary’s name if the SSI beneficiary were to die prior to age 55. Nor does this payback provision apply to third party special needs trusts that prevent the house from ever becoming the asset of the SSI recipient.
“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”