Q. Our 35 year old daughter is going through a divorce. She is on disability and gets SSI and Medi-Cal. We worry that she may lose her benefits once she is awarded support and receives her share of community property. You recently wrote about a Special Needs Trust to protect benefits for a senior in a nursing home. Might that trust also be used in her situation to protect her benefits?
A. Yes, indeed, and my compliments for asking the question. Very few attorneys and judges are familiar with the use of the Special Needs Trusts (“SNT”) in the divorce context. As a result, the sad fact is that many persons on SSI and/or Medi-Cal lose their benefits when they divorce. A bit of background:
To qualify for Supplemental Security Income (“SSI”), an individual with a disability must meet two conditions: She must (a) have less than $2,000 in non-exempt resources (e.g. savings), and (b) her monthly income must be less than the SSI benefit rate, currently $895.72 (in 2017). An award of SSI also entitles the beneficiary to Medi-Cal.
In the divorce context, a spouse would typically be awarded both spousal support and a division of marital assets, such as bank accounts, IRA’s, etc. If that spouse were receiving SSI and/or Medi-Cal, the award of support and/or marital assets could render that spouse ineligible for public benefits if they put her over the respective income or resource ceilings. The question, then, is whether there is a way to preserve BOTH a spouse’s public benefits AND her right to support and share of marital assets?
Answer: YES. Enter the Special Needs Trust. If handled with proper care, the SNT could hold both court-ordered support and resources, thus preserving for the spouse with a disability both her public benefits and the divorce award, and thereby helping to make her life post-divorce a bit easier.
Once inside the SNT, the Trustee would handle the funds in a manner compliant with the SSI and Medi-Cal rules. This typically would mean that the Trustee would not disburse funds directly to your daughter, herself, but instead would pay third party providers, selected by her, directly for goods and services that she needed, such as a car, computer, clothing, etc. A good trustee would comply with your daughter’s requests for payment to her selected providers, so long as those payments did not undermine her ongoing eligibility for the public benefit programs. The trustee would also typically make periodic reports to the government programs to affirm compliance with the program rules.
If mentally competent, your daughter could create her own SNT and even select her own Trustee, who might be a parent or trusted friend. Alternatively, she could join a Pooled SNT established by a non-profit organization, which would provide professional trustee services for a reasonable fee.
To make this option work, it is essential that your daughter engage an Elder Law or Special Needs attorney familiar with the use of the SNT in divorce. The SNT attorney would then work with her divorce attorney and might help educate the judge and opposing counsel to the benefits of this technique. It is also best that the SNT attorney be engaged early in the case. For more on topic, click on the following article addressed to California Elder Law attorneys which appeared in the Legal Network News, Fall 2017, published by CANHR and entitled “SNT’s Can Protect Public Benefits in Divorce”, and updated in January, 2021.
See, also, this article “Enhancing The Quality of Life for the Spouse or Child with a Disability: A New Use For the Special Needs Trust”.
References: SI 01120.201(J)(1)(d) [“.unless the assignment is irrevocable.”]; SI 01120.200(G)1)(d) [“..as a result of a court order…”]; SNT Fairness Act