Yes, a special needs trust can pay for utilities for the designated beneficiary in some cases. However, there are some things you should take into account before designating trust funds for this purpose. It’s important to know when a special needs trust can pay for utilities, what other benefits it may affect, and other strategies for making the most of those benefits.
When Can a Special Needs Trust Pay for Utilities?
When managing a special needs trust, understanding when and how to allocate funds for utilities is key to maintaining the balance between supporting your beneficiary and preserving eligibility for federal assistance programs. In most cases, you can use funds from a special needs trust to pay for utilities. However, this may affect Social Security Disability Income or Medicaid benefits. For many people with a disability, these services are an irreplaceable lifeline. There are various scenarios when you can use a trust for utilities and other living expenses, and when it doesn’t make sense.
SSI, Medicaid, and Special Needs Trusts
A special needs trust is an excellent tool for helping certain individuals qualify for federal assistance through SSI and Medicaid. The money placed in trust is generally not considered a financial resource for asset qualifications.Â
Keep in mind that there are very specific rules for when a trust counts toward resources for these programs, and they can be different for each one. It is a good idea to speak with a legal professional when establishing a special needs trust to ensure you choose the correct format.
Despite their usefulness, you want to be careful not to allow the trust to negatively affect those benefits. The federal government considers distributions from a trust to be income if they are used for shelter or given directly to the beneficiary. For this purpose, shelter includes:
- Housing costs (rent, a mortgage, or room and board)
- Property taxes
- Utilities (fuel oil, gas, electricity, water/sewer, and trash collection)
If you use a trust to pay for utilities in normal circumstances, it can drastically reduce benefit amounts. However, choosing to give up a portion of SSI can make sense for some people, especially those with significant trust assets. You must weigh the pros and cons of using the funds to supplement assistance programs before making a distribution.
What Are the Benefits of Using a Special Needs Trust for Utilities?
While you must be careful to avoid complications with other benefits, there are some advantages to using a special needs trust to pay for utilities. It is a way to supplement very limited income, and can serve as an emergency fund if a person loses other housing arrangements.
For example, if an individual must leave a group home because it closes or they are no longer eligible for services, they can use money from a special needs trust to cover basic living expenses. This is usually a temporary arrangement covered by exceptions to Social Security policies.
What Is a Special Needs Trust?
Special needs trusts are valuable financial tools for protecting assets and helping individuals with disabilities live fulfilling lives. They have many advantages, and can ensure financial security for beneficiaries without affecting their ability to collect federal disability benefits or Medicaid.
The three main types of special needs trusts are classified as first-party, third-party, and pooled. The first two are funded and managed by individuals, where nonprofit organizations manage pooled special needs trusts as a group for one or more beneficiaries to maximize investments. Funds from a first-party trust must repay Medicaid after the beneficiary’s death.
What Other Expenses Can a Special Needs Trust Cover?
Some people may choose to use special needs trusts to cover utilities, while others opt to preserve the assets and maximize federal benefits programs. If you fall into the latter category, rest assured that a special needs trust is still a valuable tool for someone with a disability. It can be used for a wide range of expenses to help the beneficiary live a comfortable and enriched life. Some of the most common include:
- Activities and entertainment (books, movies, TV, phone, etc.)
- Education or training programs
- Home purchase
- Legal expenses
- Personal and household items
- Transportation (travel costs, vehicles, etc.)
Special needs trusts can be used to pay for trust taxes, administration, and maintenance. A prudent administrator can manage distributions from the trust to ensure a favorable tax outcome.
Learn More About How a Special Needs Trust Can Pay for Utilities
AmeriEstate offers comprehensive estate planning services with compassion and a commitment to client service. Our legal professionals are on hand to answer questions about how and when a special needs trust can pay for utilities and other living expenses, so you understand exactly how and when to use this financial tool. Contact us today to schedule a free consultation.