Charitable Intentions With Potentially Uncharitable Results

October 29, 2013

My husband was ecstatic last weekend as the winning bidder of four Ravens tickets at a silent auction. The silent auction was part of a fundraiser for my friend’s niece, Melissa, who has been suffering from a rare illness that left her paralyzed from the waist down. Her story captured the attention of the local newspaper, then went viral when she was the featured recipient of Chive Charities for Hope for a Home. When I made the check out to pay for the Ravens tickets, I was told to make it payable for $350 to Melissa, but my check was miniscule compared to the over $388k raised altogether.  I was so happy that Melissa’s fundraiser had been such an amazing success, but I was also concerned about the consequences these donations might have on her since I was writing the check directly to her. 

Because Melissa has been unable to work due to her illness and disability, she has been relying on SSI for income for her living expenses. Supplemental Security Income (SSI) is a federal income supplement program  that is designed to help aged, blind, and disabled people who have little or no income, and provides cash to meet basic needs for food, clothing, and shelter. In order for Melissa to be eligible for SSI, there are income and asset limitations and I feared that if the money raised went directly to her, it would disqualify her from receiving SSI.

With all of her health issues, being able to see a doctor is essential, and  Melissa is currently covered by Medicaid for her health coverage.  However, Medicaid has similar income and asset limitations to SSI and receiving hundreds of thousands of dollars from the fundraiser could also cause her to lose her Medicaid coverage. So how can she protect her eligibility for these important government benefits?

A special needs trust (SNT) could be the answer. The SNT would be set up for Melissa’s benefit and funded with the proceeds of her recent donations.  Based on Title 42 established by Congress in 1993, statutes provide that if a trust meets the U.S. Code requirements, then the trust is not a countable resource for SSI and Medicaid qualification purposes and any transfer of assets to the trust would not result in a period of ineligibility for either SSI or Medicaid.

If you have any loved ones who are receiving SSI or Medicaid (including an elderly relative in a nursing home) be cautious when giving them monetary gifts outright.  Consider setting up your own SNT for their behalf. Otherwise your generosity could have unintended consequences.