Dear Len and Rosie,
My daughter, age 22, is disabled and on SSI. She received a $10,000 check—an inheritance from her grandmother’s trust.
Can I deposit the money into her Special Needs Trust without incurring a transfer penalty for SSI?
The answer to your question is that it depends.
There are two kinds of Special Needs Trusts (SNT). There are Thirty Party SNT’s created by someone on behalf of a disabled person to prevent an inheritance from costing a loss of benefits.
If this is the type of SNT your daughter has, you may be able to get the trustee to reissue the check to the trustee of the SNT. If that’s not possible, you can’t deposit the check into the SNT without incurring a transfer penalty.
If your daughter has a First Party SNT that was created with her own money, such as medical malpractice or personal injury settlement, then you can deposit the check into that trust.
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It’s designed to comply with federal regulations created under 42 U.S.C. §1396p(d)(4)(A) that allows the transfer to avoid a transfer penalty for SSI benefits.
If such a trust does not exist, then your daughter, or a parent or grandparent may create one for her. The downside is that this sort of SNT must pay back Medi-Cal after your daughter’s death.
If she hasn’t got a First Party SNT already, it’s probably too expensive to create one to shelter a $10,000 inheritance.
Fortunately, there’s an alternative. The Achieving a Better Life Experience (ABLE) Act of 2014, allows for the creation of ABLE Accounts for persons who became disabled prior to age 26.
With an ABLE Account, your daughter may deposit up to $15,000 a year from an inheritance or gift, or even money she saves up. The maximum balance of ABLE Accounts is $100,000. ABLE Accounts, and the interest and dividends earned by them, are also tax free.
The downside, if there is one, is that the money in an ABLE Account must be spent on expenses related to your daughter’s disability, such as assistive technology, such as a van with a wheelchair lift, if one is suitable.
If you are interested in reading about ABLE Accounts, visit calable.ca.gov. If you are unsure as to what type of SNT your daughter has, review the trust with a trust and estates attorney.
Len and Rosie