Being Alive; February 1994
John Alan Cohan

The federal Social Security Administration (Social Security) runs the SSI program. The California Department of Health Services (DHS) runs the Medi-Cal program (called Medicaid in other states) by agreement with the federal government. The Department of Social Services in each county, commonly known as the "Welfare department," administers the Medi-Cal program locally.

A person with AIDS can become an SSI beneficiary if he or she is disabled and has assets and income low enough to meet a "means test." SSI is intended to pay for the beneficiary's food, clothing, and shelter. The maximum SSI amount in California for an adult living independently is $620. Since SSI is supplementary income, almost all other income will reduce the SSI amount the beneficiary is entitled to receive. If such outside income is big enough, it will reduce SSI to zero.

Once qualified for SSI benefits, the beneficiary will receive Medi-Cal automatically because he or she is "categorically eligible. "But if the beneficiary receives too much outside income or has assets that are too large, SSI eligibility will be lost along with Medi-Cal coverage. Loss of Medi-Cal can be a more serious problem than the loss of SSI if alternative medical insurance is not readily available.

Just what assets does Social Security count, and what assets are excluded, in determining eligibility for SSI? Generally speaking, SSI counts any "resource" in determining eligibility. A resource can be any tangible asset, like a bag of groceries, or it could be intangible, like a savings account. Moreover, anything that can be converted to cash for support is deemed a "resource." The beneficiary is only allowed to have up to $2,000 in "resources." If resources exceed $2,000 at the start of any calendar month, public benefits will be lost. But if proceeds from the sale of an insurance policy or other assets are held in a special needs trust, they are not deemed a "resource" of the beneficiary because of the way the trust is set up.

There are two kinds of assets not counted by Social Security: assets that are not "available," and those that are "excluded" (sometimes called "exempt"). Assets in a special needs trust are deemed not "available" by Social Security. The assets are not available to the beneficiary because the beneficiary does not have the legal right to gain access to them, although the trustee can and does apply the funds to specific uses of the beneficiary. The trustee can freely utilize trust funds to purchase "exempt" assets and give them to the beneficiary without jeopardizing SSI. For example, if the trust is sufficiently large, a trustee can buy a home for the beneficiary's principal residence, without regards to value. In addition, household furnishings, equipment, supplies, clothing, jewelry, and other items of personal care, including musical instruments, can be purchased out of the trust to a limited value. Special medical equipment can be purchased without a dollar limit. An automobile or other vehicle can be purchased as well.

Money paid directly to the beneficiary will be considered "income" and will reduce his or her SSI benefits on a dollar-for-dollar basis. The trustee should therefore make payments directly to merchants, vendors or service providers, as the case may be.

The receipt of "services" by the beneficiary will not damage SSI eligibility. The trustee can therefore pay for the following, all of which are deemed "services": education and travel, recreation and entertainment, telephone service, home services such as gardening, and medical care, social services, and other professional services.

In order to protect the trust's distributions from being wrongly categorized by SSI rules, the trustee must maintain very accurate records. These records will be needed if Social Security or the welfare department wants verification of the expenditures made on behalf of the beneficiary. Such a demand for verification is very likely to occur, and should be anticipated accordingly. It must be understood that there is no "one size fits all" model for every special needs trust, and the strategy must be clearly established with specialized legal counsel.

(John Alan Cohan is an attorney specializing in wills, trusts and probate. He welcomes your calls at 800.255.1529 or 310.557.9900.)

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