Trusts

A trust is a legal arrangement in which a person or organization (like a bank) manages assets for someone else. The person receiving payments from the assets is called the “beneficiary” and the person who is managing the assets is the “trustee.” Many kinds of assets can be put into a trust, such as cash, stocks, bonds, and real estate.

Many different kinds of trusts can be set up to hold the assets of a person with disabilities so that they can receive public benefits such as:

It is important that either you or the person setting up the trust for you do so correctly. Depending on how the trust is set up, assets in it won’t be counted toward the SSI asset limit.

Note
The rules for setting up trusts can be complicated and it is important to make sure that you seek out good advice about how to set one up to avoid serious problems.

While public benefits such as SSI, AHCCCS, and HUD housing assistance provide basic support for food, shelter, and medical care, a trust can be used to add support and services in the ways most helpful to you. For example, money from the trust could be used to pay for your recreation, telephone bill, education, and vacations.

Although trusts can have huge advantages, they also have strict rules. The funds must be used to benefit only you; no one else can benefit from that trust. Also, the trust is set up to help you, but payments should not be made directly to you. Payments made directly to you count as income and may affect your benefits. When you need to pay a provider for something that is not food or shelter, the trustee will pay the money from the trust directly to the provider. Only the trustee can handle the money from the trust.

Special Treatment Trusts

In Arizona, there is no limit on your assets when you apply for state medical benefits through AHCCCS. That includes AHCCCS Freedom to Work. However, if you may need long-term care in the future, the Arizona Long Term Care System (ALTCS) program does have an asset limit. So you will want to set up any trust with that in mind. There are three kinds of trusts you can use to manage your assets so that you can be eligible for ALTCS. These trusts are called Special Treatment Trusts.

The most important things to keep in mind when setting up a Special Treatment Trust are the following:

  • The trust must be made up of your own income or resources.
  • The trust must be created on or after August 11, 1993.
  • You must be named as the beneficiary of the trust.
  • AHCCCS must be named as the Remainder Beneficiary. That means that when you die or the trust is closed, any remaining assets in the trust will first go to pay AHCCCS back for the cost of your long-term care services. AHCCCS won’t take back more money than you spent while on the program. Any remaining assets will go to your other beneficiaries.
  • The payments out of the trust must be made in accordance with Arizona law.

Here are a few things that would be a qualifying payment out of a trust under Arizona law:

  • Living expenses for food, clothing, and shelter
  • Payment for long-term health care services
  • Legal expenses
  • Health care premiums
  • Education or vocational programs

The basics of each kind of trust is discussed here, but if you have any questions, you should seek professional advice. You can find additional resources or an attorney in your area at the Special Needs Alliance.

Income-Only Trusts

An Income-Only Trust, also called a stream-of-income trust or a Miller trust, holds only your monthly income, such as from a pension or Social Security benefits. You can’t include any resources like real estate. You should only consider this kind of trust when your income is more than $2,313 per month.

An Income-Only Trust can be set up by:

  • You
  • Your spouse
  • The court

The primary use of this kind of trust is if you want to manage your income to maintain your eligibility for the Arizona Long Term Care System (ALTCS). For more information about ALTCS, click here.

Disabled Individual Under Age 65 Trusts

A Disabled Individual Under Age 65 Trust, also called a First Party Special Treatment Trust, is used if you have accumulated many assets, inherited assets, or received assets from a court settlement.

It used to be that people with disabilities were not allowed to set up their own Disabled Individual Under Age 65 Trust, even though it was their own money. A parent, grandparent, guardian, or court had to set up the trust, the trustee controlled the funds, and you could not be your own trustee. The laws changed in 2016, and this type of trust can now be set up by you, or by your parent, grandparent, legal guardian, or the court.

To qualify, you must be under 65 years old and must have a disability as determined by:

Pooled Special Treatment Trust

This type of trust will “pool” assets from different members and put them into a large investment fund. Although the funds are pooled (used together), you still have your own separate account. Pooled Trusts offer both First Party accounts (funded with only your own money) and Third Party accounts (funded only with money from other people). All beneficiaries of a Pooled Trust must have a disability as determined by:

This type of trust must be set up through a nonprofit organization. The nonprofit organization will administer the Pooled Trust, take care of all the tax preparation, make investment decisions, and act as the trustee.

Before the Pooled Trust is set up, you and/or your family members must explain what you want the trust to pay for, and who should be consulted about these matters.

Who can set up a Pooled Special Treatment Trust?

  • You
  • Your parent
  • Your grandparent
  • Your legal guardian
  • The court

Non-Special Treatment Trusts

In Arizona, you can also set up a Non-Special Treatment Trust, which has fewer rules than Special Treatment Trusts. One particular kind of Non-Special Treatment Trust is a Third Party Trust.

Third Party Trusts

Parents usually set up and provide the money for Third Party Trusts to provide for the future needs of a disabled child. These trusts are often created through their will, and sometimes by purchasing life insurance payable to the trust. Other family members can also put money in this type of trust, such as grandparents, aunts, and uncles. The only person who cannot place money into this type of trust is you, the person with a disability.

Some parents place their property in a "living" trust and state in that trust that a separate trust will be created for their disabled child upon their death. This type of trust is often effective immediately. Anyone can give money to the trust by either writing a check or writing a will naming the trust as the beneficiary.

Note

You do not want your relatives giving money directly to you as this may reduce or stop your SSI and HUD housing assistance.

The key to a Third Party trust is that the money should not be used for housing or food. Housing and food are considered "basic needs" under Social Security laws. If you are receiving free housing or food from someone else, including a family member or a trust, then there will be a penalty and your public benefits will be reduced or stopped. This is why you don’t want to use assets from the trust for housing or food.

Trusts are a complicated but important issue. If you have questions about trusts you can find additional resources or an attorney in your area at the Special Needs Alliance.

For information about Special Treatment Trusts and SSI eligibility, you can read the SSI Spotlight on Trusts. If you have questions, contact the Ability360. You can find the local information for ABIL on their website.