An often-overlooked tool for long-term Medicaid planning purposes is the sole benefit trust (SBT). How powerful the SBT can be depends on whether the person with a disability is receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) benefits. While SSI has income and resource limitations on funds received from an SBT, SSDI has no such income or resource limitations.
Sole benefit trusts are a type of special needs trust (SNT). “A transfer is considered to be for the sole benefit…if the transfer is arranged in such a way that no individual or entity except the spouse, blind or disabled child, or disabled individual can benefit from the assets transferred in any way, whether at the time of the transfer or at any time in the future.”
Timmy does not own a home so the first year Cindy transfers ownership of the home to Timmy. This satisfies the first-year requirement of the SBT making distributions that are actuarially sound to Timmy. The following year there is only $100,000 in the SBT, and Timmy is now 57. To be actuarially sound Cindy must now distribute $4,166.67 to Timmy ($100,000/24 year life expectancy). This distribution can be spread out over 12 months at $347.22 per month ($4,166.67/12=$347.22). Timmy receives $800 a month in SSI. As long as he receives $1 a month in SSI, he keeps his Medicaid. Using this strategy Timmy’s SSI would be reduced by the amount he receives from the SBT, but he would be able to keep his Medicaid. The trust’s distributions would offset the loss in SSI and James would be eligible for Medicaid for long-term care. James would likely want to name Cindy and his lineal descendants as the remainder beneficiaries. (Check your state regulations regarding possible gift or inheritance tax as well as your state’s specific rules regarding Medicaid and SSI eligibility.)
