A self settled special needs trust, one funded with the disabled beneficiary’s own assets, requires a clause known as the sole benefit rule. This clause restricts the assets of the trust such that they can only be used for the benefit of the disabled beneficiary, The Social Security Administration (“SSA”) takes a narrow definition of sole benefit. Here are two examples in which SSA considers the sole benefit rule to be violated:
The trust pays the beneficiary’s mother to give care to the beneficiary. SSA contends that absent a showing of evidence that the mother has formal training needed to provide the care , the sole benefit rule is violated.
The trust pays for the beneficiary’s brother’s travel expenses to come visit the beneficiary. The SSA considers the sole benefit rule to be violated no matter how much the disabled beneficiary desired to see his brother, or even if the visit was need to check on the brother.
Violating the sole benefit rule can produce harsh consequences for the beneficiary. Those chosen as trustee’s of special needs trusts are encouraged to seek legal advice in making distributions.