When a child with special needs reaches eighteen, the individual or his loved ones are often encouraged to apply for Supplemental Security Income (SSI), which provides a monthly cash benefit to the individual so long as he is disabled in accordance with Social Security Administration’s definition and is financially eligible. Social Security Administration defines disabled for an individual 18 or older as someone who is unable “to engage in any substantial gainful activity (SGA) because of a medically-determinable physical or mental impairment(s) that either (1) is expected to result in death, or (2) has lasted or is expected to last for a continuous period of at least 12 months.”
With regard to an individual’s financial eligibility, there are two tests: resources and income. Resources are cash and things an individual owns that can be turned into cash. Examples of resources include, but are not limited to, bank accounts, stocks, bonds, and certain types of life insurance. The total value of countable resources for an individual must be less than $2,000.00 and less than $3,000.00 for a couple.
There are various types of income that are considered when determining whether an individual’s income is below the limit, which include earned income, unearned income, deemed income, and/or in-kind income called In Kind Support and Maintenance (ISM). Wages are a type of earned income, and unearned income includes all income that is not earned, such as Social Security benefits, pensions, unemployment benefits, and interest income. Deemed income is part of the income of an SSI recipient’s spouse or parent with whom the individual lives. In kind (ISM) income is food or shelter that an individual gets for free or for less than fair market value. Whether an individual’s income is below the allowable limit depends on the type of income an individual has.
When a family allows their adult child, who is an SSI recipient, to continue to reside in their home for free, it is considered in-kind income, which generally reduces an SSI recipient’s monthly cash benefit by one-third of the Federal Benefit Rate ($943.00 for an individual in 2024). Currently, this would result in a reduction of approximately $334.33. To avoid an unnecessary reduction in an individual’s monthly SSI benefit and to guarantee an individual receives the maximum monthly benefit, he should be charged room and board.
To calculate an adult child’s portion of room and board, all household expenses for food, rent, and essential utilities should be added together and divided by the number of individuals living in the household. For example, an adult SSI recipient resides with both parents and 3 adult siblings, and the monthly household expenses total $2,400.00. The amount of room and board charged to the SSI recipient would be $400.00 ($2,400.00 divided by 6 people in the home).
If possible, the monthly room and board agreement should be memorialized by a written document between the parents and the adult child, which evidences the date on which the arrangement began, and that, in exchange for the parents providing room and board, the adult child acknowledges his obligation to pay room and board monthly.
For parents who charge room and board, this is income to the parents and must be reported annually on their income tax returns. Once the money is received by the parents, it is their money to do with as they please and can be used toward household expenses. Also, the parents could choose to use these monies to fund a Third-Party Funded Special Needs Trust for the benefit of their adult child with disabilities, which most parents utilize as part of their estate plan to insure that the adult child continues to qualify for resource-dependent public benefits, such as SSI, while being able to leave an inheritance to their child with special needs.
The same reduction in SSI applies if the child lives in an apartment or other housing for which the parents pay. An option to avoid the SSI reduction in this situation would be to fund an ABLE account for the child, and have the ABLE account pay the monthly rent. Distributions from an ABLE account are not treated as income and as such, do not count as ISM. Careful consideration is needed to determine if this arrangement would work as in most cases, the ABLE account can only be funded annually with the amount of the annual gift tax exclusion ($18,000.00 in 2024). Additionally, to be eligible for an ABLE account, the individual must be disabled before age 26, although this age limit is increasing to age 46 in 2026.
It is critical to take proper planning steps to insure that an SSI recipient’s monthly SSI benefit is not reduced by in-kind income. Additionally, it is important to contact an attorney to assist with planning regarding these benefits as well as others that may be available to ensure that your loved one is receiving the maximum benefits, to which he or she may be entitled.