The question of whether a special needs trust (SNT) can fund self-employment or gig economy expenses is complex, requiring careful navigation of Supplemental Security Income (SSI) and Medicaid rules. Generally, SNTs are designed to supplement, not supplant, government benefits, and the IRS has strict guidelines regarding distributions. While it’s *possible* to use SNT funds for these purposes, it demands meticulous planning and adherence to specific requirements to avoid jeopardizing crucial benefits. Approximately 65% of individuals with disabilities rely on SSI as a primary income source, making benefit preservation paramount. The key lies in structuring the self-employment so that it doesn’t disqualify the beneficiary from needs-based assistance.
What are the biggest risks with self-employment and SSI?
The primary risk is that income earned from self-employment will be counted towards the SSI income limits. In 2024, the monthly SSI income limit for an individual is $874. Earning even a small amount above this limit can lead to a reduction in benefits. Furthermore, the Social Security Administration (SSA) may consider the *value* of assets used in the self-employment venture (like a computer, van, or tools) when determining eligibility. A significant portion of self-employment income will be disregarded initially, but that disregard diminishes as income increases. It’s also vital to understand that the SSA doesn’t just look at net income; they consider *gross* income when initially assessing eligibility. A critical point is that if the self-employment is considered “substantial gainful activity” (SGA), the beneficiary could lose SSI benefits altogether. SGA levels are updated annually, but in 2024, it’s generally $1,550 per month for non-blind individuals.
How can a special needs trust support entrepreneurial endeavors?
A properly drafted SNT can be a powerful tool for funding legitimate business expenses without impacting benefits. The trust can pay for things like: equipment, software, marketing materials, business licenses, insurance, and even professional services such as accounting or legal advice. However, it *cannot* directly pay the beneficiary’s wages or profits. Instead, the trust can cover expenses, and any remaining income is held in a Subpart A trust, which is specifically designed to accumulate funds without affecting benefit eligibility. A crucial aspect is documenting *everything*. Meticulous record-keeping of all expenses and how they directly relate to the business is essential for demonstrating to the SSA that the trust funds are not being used to supplement the beneficiary’s income. “We consistently advise clients to treat the SNT funds as seed money for the business, not as a source of personal income,” states Ted Cook, an Estate Planning Attorney in San Diego.
What happened when Sarah tried to start her Etsy shop?
Sarah, a talented artist with cerebral palsy, dreamed of selling her watercolor paintings online. She excitedly started an Etsy shop, using funds from her SNT to purchase art supplies and pay for listing fees. She didn’t consult with her trustee or an attorney specializing in SNTs. Within a few months, her sales exceeded the income limit for SSI. She received a notice from the SSA stating her benefits would be reduced. It was a devastating blow. Sarah was forced to temporarily close her shop and rely solely on her caregiver for support. She felt defeated and lost the momentum she had built. This story highlights the importance of proactive planning and professional guidance.
How did Michael turn his passion into a sustainable income source?
Michael, a computer enthusiast, wanted to offer tech support services to seniors in his community. He worked closely with his trustee and Ted Cook to structure a plan that allowed him to use SNT funds responsibly. The trust paid for his computer, software, and marketing materials. Michael charged a modest hourly rate for his services. All of his earnings were deposited into a separate Subpart A trust account. The trust then used those funds to reimburse the SNT for legitimate business expenses. Michael was able to build a thriving business while *maintaining* his SSI and Medicaid benefits. He felt empowered, independent, and fulfilled. This demonstrates that with careful planning, self-employment can be a viable and beneficial option for individuals with special needs. It requires diligent record-keeping, consistent communication with the SSA, and the guidance of experienced professionals to ensure compliance and protect critical benefits.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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