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Special Needs Trust Distributions, Credit Cards, Debit Cards & True Link Cards

Posted on: May 14th, 2019 by Lawrence A. Friedman

A special needs trust (sometimes called supplemental needs trust, SNT, supplemental benefits trust, or SBT) is a great way to make funds available to benefit a person with disabilities without disqualifying a disabled person for government benefits. However, a special needs trust will disqualify a disabled person for government programs unless the trust is drafted and administered correctly.

A properly drafted special needs trust permits the trustee to spend the trust for the disabled person’s best interests without giving the disabled person rights to control the trust, spend the trust for food or shelter, or revoke the trust. Additional requirements apply to trusts that contain amounts that could have been paid to the disabled trust beneficiary (e.g. trusts containing proceeds of a disabled beneficiary’s medical malpractice settlement).

Even though a special needs trust may be drafted properly, it still can disqualify the disabled trust beneficiary if it gives the disabled beneficiary cash, allows the disabled beneficiary to withdraw cash, or pays for the disabled beneficiary’s food or shelter. (Although details are beyond the scope of this article, good legal advice may permit a special needs trust to fund certain food or shelter purchases but not disqualify the disabled beneficiary for government disability benefits like Supplemental Security Income (SSI), Medicaid, SNAP (formerly called food stamps) and section 8 housing aid.)

We often are asked how a special needs trust can satisfy a beneficiary’s needs without disqualifying the beneficiary for government aid. While the simplest approach probably is for the special needs trust to make all purchases directly and provide purchased items to the beneficiary, that often is not practical. Like anyone else, a person with disabilities may wish to make impulse purchases, pay for entertainment, shop in a store, etc.

Another option may be for the disabled trust beneficiary to have his/her own credit card and ask the special needs trust to pay the credit card bill. However, the trust must not have any obligation to pay the credit card bill or else the beneficiary would have impermissible control over the trust. Similarly, a special needs trust beneficiary should not have an ordinary debit card on any account other than the beneficiary’s own account that is within government benefit program limits.

Recently, a new option has become available– trustee managed prepaid cards such as the True Link debit card. These cards allow a trustee to give a special needs trust beneficiary a debit card that can be used only for purchases that should not disqualify the special needs trust beneficiary for government disability benefits. The card should provide that the disabled special needs trust beneficiary may not use the card to obtain cash. If the trustee also prohibits the card from being used to buy food or shelter, the special needs trust beneficiary can then use the card to buy clothes, entertainment other than food, and other things without jeopardizing disability aid. In short, True Link and other similar cards give trustees one more tool to afford greater independence to special needs trust beneficiaries.

Please contact FriedmanLaw if you want to discuss options to design or administer special needs trusts to better meet your needs.

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