POMS & Special Needs Trusts Distributions
What is POMS?
POMS is the Program Operations Manual System which is the primary source of information used by Social Security employees to process claims for Social Security benefits such as Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI).
A public version of POMS can be found at the social security website where interested parties can learn about the details of allowable expenditures. This is of special interest to beneficiaries of a special needs trust (SNT), as requests for distributions from an SNT can have an effect on Social Security benefit eligibility.
When the trustee of an SNT trustee receives a disbursement request, the first consideration is the distribution standard. There are two types of distribution standards – supplemental and discretionary.
The Supplemental Distribution Standard
The supplemental standard is typically used when the main goal of the trust is to preserve benefits. It is often the default distribution standard. This standard prohibits trustees from allocating any funds that would disqualify SSI beneficiaries or reduce their payments.
SSI monthly income reduces by a third when a beneficiary receives payment from an SNT for food and shelter. This reduction is constant regardless of how much money they receive for food and shelter.
Depending on the life circumstances of the beneficiary, this standard can be restrictive, particularly given high costs of living. Giving the beneficiary income for shelter might be in their best interests, even if it reduces their SSI income. If the person with a disability receives SSI payments, it is important to consider how long the individual is expected to be on SSI.
Should the trust protector, beneficiary, and trustee conclude that this standard harms the beneficiary’s living situation, the court may allow the standard to change. Sometimes, the trust terms allow the standard to change. (Note: A trust protector is a “Super Trustee.” Unlike the trustee, he or she is not involved in the day-to-day management of the trust assets but is empowered to oversee the trustee, to replace the trustee, and, sometimes, to petition the court to amend or reform the trust document.
The Discretionary Distribution Standard
The discretionary standard allows more freedom and is preferred. Though it is less restrictive than the supplemental standard, other methods can limit the trustee’s powers and serve as checks and balances.
SNTs utilizing the discretionary standard allow distributions that affect public benefits eligibility. The trustee must carefully evaluate how distributions could trigger rules regarding SSI in-kind support and maintenance.
The HEMS Standard
The HEMS standard is used in many trusts to establish how the assets in the trust can be used. HEMS stands for Health, Education, Maintenance, and Support, and this acronym outlines the types of expenses that qualify for a distribution. Additionally, it provides guidance for the trustee while giving them discretion when making trust distributions.
SNT trustees should be wary of the HEMS standard. This standard can render the beneficiary ineligible for public benefits.
Paying for Food or Shelter
Since making distributions for food and shelter affects SSI benefits, trustees should look at the overall effect these types of distributions could have on beneficiaries, balancing the effect on benefits with other considerations.
Shelter includes gas, electricity, water, sewer, heating fuel, garbage removal, real estate taxes, and rent or mortgage payments. Food includes restaurant meals and groceries.
Sometimes, improving the beneficiary’s standard of living can be worth reducing or eliminating SSI benefits. The trustee can then pay the beneficiary’s food, gas, electricity, water, sewer, heating fuel, and garbage removal for a fixed SSI reduction.
Keep in mind that since the SSI lowers to one-third of the total federal amount, those with low SSI awards might lose or significantly reduce their benefits.
Paying for the Care and Needs of a Beneficiary’s Minor Child
While paying for pets via an SNT is fairly straightforward, using funds to support children can be more complex. Public policy supports paying for a child’s needs.
For a third-party SNT, paying for children’s needs is generally permissible as long as the trust’s terms do not prohibit it.
For a first-party SNT, it is good practice to secure a court order.
Buying a Car
Purchasing one automobile with trust funds does not affect benefits eligibility.
Paying for third-party caregiving services or paying a family member to provide care should not impact public benefits eligibility. The Social Security Administration cannot ask family caregivers to supply medical certifications.
Funding caregiving can be more nuanced for minor beneficiaries whose parents provide care, as the trust cannot fund parents to perform normal parental duties. Parents have a duty to support their children.
When hiring a caregiver, the trustee should evaluate whether to make them an employee or an independent contractor. If someone hired as an independent contractor lacks autonomy and acts like an employee, the individual might become an employee under the law.
Paying for Companion Services
The trust can support companions. For instance, the trust could fund a sitter for an older adult with dementia while the family goes out.
Travel expenses and incidental expenses for the companion may be included. This could cover tickets to an outing for the beneficiary and their companion. It is wise to request a note from the beneficiary’s medical provider verifying that the trust beneficiary is not able to travel alone.
Traveling to Visit the Beneficiary
Paying for travel to visit the beneficiary is allowed. However, the expenses must be reasonable.
Making Donations to Charity or Church
Making donations can be an important part of the beneficiary’s religion. For first-party SNTs, donations are disqualifying transfers. Third-party SNTs can permit donations.
Trust Distribution Methods
The distribution method is crucial since the beneficiary cannot receive cash from the trust.
Trustees may pay third-party vendors directly. They may also reimburse third parties if they are not the beneficiary.
Gift cards for stores that do not sell food and shelter, such as Macy’s, a bookstore, or an electronics store, are permissible. The gift card must have a legally enforceable prohibition on its resale.
Trustees must be account holders on prepaid cards. When the beneficiary is the account holder, the money counts as unearned income.
True Link disbursements can transfer trust funds, but trustees should know how funding certain things affects benefits eligibility.
Using credit cards is allowed. Paying for food and shelter with a credit card jeopardizes benefits.
POMS authorizes funding Achieving a Better Life Experience (ABLE) accounts. Distribution from SNTs to ABLE accounts provides beneficiaries with greater independence and self-determination.