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New legislation from Washington that became effective on December 14, 1999 establishes a penalty period for applicants or recipients of SSI (Supplemental Security Income) who transfer or give away their resources. The law provides that a 36-month "look-back" period be applied starting with the date of the SSI application or the date of the transfer, whichever is later. Depending upon when and how much money is transferred, SSI eligibility may be withheld for as long as 36 months.

The law also provides, however, that if the transfer is made to a Supplemental Needs Trust, no penalty period can be imposed; and, therefore, SSI eligibility will not be jeopardized. The Supplemental Needs Trust may be established by the SSI recipient, parent, grandparent, legal guardian of the SSI individual, or a court. The trust must include a payback provision that the State will receive all amounts remaining in the trust upon the death of the individual up to the total amount that Medicaid paid.

Before the passage of the new law, it was possible for an individual to transfer excess income or resources in one month and apply the following month for SSI without incurring a penalty period for the transfer. For SSI purposes, income is anything an individual receives during a calendar month and can use to meet his or her needs for food, clothing or shelter. Income not spent in the month received is considered a resource in the following month. It is not clear whether the new transfer penalty rules also apply to income.


Transfers to a Trust: A Planning Strategy

John Smith is under 65 years of age, disabled and an SSI recipient. Under the terms of a relative's will he received a sum of money several months ago that now renders him ineligible for SSI. If he transfers or gives away these funds now to a relative or friend, he will incur a lengthy penalty period of ineligibility. However, he or his representative may retain an attorney to draft a trust agreement, which may be named, for example, the "John Smith Supplemental Needs Trust." Under the terms of the trust agreement, Mr. Smith's funds may be transferred to a bank account established in the name of the trust.

The trust will have its own tax-identification number and an income-tax return for the trust must be filed annually. The income of the trust is taxable, however, to Mr. Smith. Assets transferred to the trust may include cash, stocks, bonds, annuities, private disability benefits, a house, co-operative apartment or condominium.

The assets of the trust will be managed by a trustee, approved by Mr. Smith. The trustee may be a relative, a friend or financial institution chosen to manage the trust for Mr. Smith's sole benefit.
The trustee may use the principal and/or the income of the trust to pay Mr. Smith's bills for goods and services, including luxuries. Payments made by the trustee for Mr. Smith will not jeopardize his eligibility for SSI (or Medicaid).

Note that money cannot be paid directly to Mr. Smith. If it were paid directly to him, he would be receiving income in excess of the SSI limit and his eligibility would be compromised.

When Mr. Smith dies, any assets remaining in the trust will be used to pay back Medicaid (for whatever services Medicaid provided). There is no payback to SSI. The assets that remain in the trust after a payback, if any is made, must be distributed according to Mr. Smith's wishes as expressed in writing in the trust agreement or in his will.


Other Allowed Transfers

The new SSI rules governing transfers are similar to the Medicaid law. Transfers of resources between spouses are allowed without penalty, as are transfers to a minor or disabled adult child of the applicant or to a trust for the sole benefit of a disabled person under 65 years of age.

The home (the house, cooperative apartment or condominium) may be transferred to a spouse, minor or disabled child of the applicant, a sibling who has an equity interest in the house and has lived there for at least one year immediately before the transfer or becomes an institutionalized individual and an adult child who resided for two years in the home before the recipient became institutionalized and whose care allowed the recipient to remain at home.


Determining the Penalty Period

When an application for SSI is made, Social Security will ask the applicant if, during the 36 months before the date of application, he or his spouse made any transfers for less than "fair market value" of cash, stocks, bonds, real property etc. Any such asset transfers would incur an imposition of a penalty period. They will be added together and the total will be divided by the combined SSI federal benefit rate and the applicable New York State supplement (which varies according to living arrangements) but is no greater than a total of $599 for an individual ($873 for a couple). The result of the calculation is the number of months for which the applicant is ineligible for SSI.

For example, if Mr. Smith transfers $20,000 in resources to another individual (a relative or friend), he will incur a penalty period of 33 months during which time he will not be eligible to receive monthly SSI benefits ($20,000 ÷ $599 = 33.3 or 33 months rounded off to the nearest whole number).
If Mr. Smith's $20,000 were transferred to a Supplemental Needs Trust, no penalty period would be incurred and he would remain eligible for his monthly SSI benefit! For further information contact an attorney familiar with SSI/Medicaid law.