Wrapping Up a Personal Injury Case
by: Thomas D. Begley, Jr.
Settling a personal injury case does not necessarily mean that it is completed. When it comes to significant personal injury settlements, there are many considerations that need to be addressed before the file is closed. By reviewing the situation thoroughly with the client, it is much more likely that the settlement will make a significant difference over the client’s remaining life. Issues that need to be considered include the following:
Medical Insurance. Does the client have the best possible medical insurance? Studies show that even if a client has Medicare Parts A, B and D, these will pay for only roughly 50% of the client’s medical costs. It is often difficult to obtain medical insurance, because of preexisting conditions. However, there are a number of possibilities, no matter how severe the preexisting conditions, by taking advantage of open enrollment periods and opportunities presented by statute for obtaining private medical insurance.
Public Benefits. Frequently in reviewing a client’s situation when a personal injury case is being settled it is discovered that the client is eligible for public benefits, such as SSI, Medicaid, Medicaid Waivers, SSDI, Medicare and other public benefits, but for whatever reason the client is not receiving those benefits. In some instances, other members of the client’s household are also entitled to these benefits, but no one has ever applied.
Estate Taxes. In large settlements clients should be advised as to the existence of estate and inheritance taxes. There is a $3.5 million exemption from federal estate tax, a $675,000 exemption from New Jersey estate tax, Pennsylvania has no estate tax, Pennsylvania does have an inheritance tax even for family members excluding a spouse, and New Jersey has an inheritance tax for many beneficiaries. The situation should always be analyzed and discussed. There are cases where simple tax planning might avoid the imposition of these taxes. In other situations, it may be possible to purchase life insurance to pay the tax notwithstanding the fact that the client may suffer from a significant disability. Purchase of the insurance might be funded by an age-rated annuity, so that the disability can actually be used to the client’s advantage.
Estate Planning. It important to determine if the client has a will, living trust, living will, power of attorney and other estate planning documents. Inquiries should be made as to whether the parents of the client with disabilities have estate planning documents. They should also have a will, possible a living trust, a living will, power of attorney, and in some instances, a third party special needs trust. If the disabled client is receiving means-tested public benefits, such as SSI and Medicaid, and the parents die and leave money to the client, the client will lose his benefits. A third party special needs trust is a device available to avoid this result.
Investment Advice. In many instances, a structured settlement is advisable for all or a part of the settlement. There are a number of features that make a structure advantageous, including the tax-free income component of the payment, as well as the rated age. The structure prevents the client from squandering the money. While it is true that a client can sell a structured settlement, it becomes much more difficult if the structure is payable to a trust.
If the settlement is significant, a portion should be set aside for investment. A portion of the overall settlement should be invested in equities and a portion in income-producing assets. The exact allocation will depend on the client’s tolerance for risk. The structure can serve as the income-producing portion of the portfolio.
Special Needs Trust. A determination should be made as to whether a special needs trust is required. If so, an appropriate trustee should be identified. It is always better to use a professional trustee, rather than a family member. However, many professional trustees are not experienced in administration of special needs trusts.
Support Trust. In situations where there are minor children, it is often useful to place the settlement in a support trust rather than in the Surrogate’s office. At age 18, the minor child can withdraw the funds held in the Surrogate’s office. By placing the funds in a support trust, a trustee, sometimes a family member, can control the money until the child is older, often 30 or 35 years of age depending on the amount of the settlement.
Settlement Preservation Trust. A settlement preservation trust is designed to protect the beneficiary from exploitation. Even if the client is not receiving any means-tested public benefits and does not need a special needs trust, a settlement preservation trust should be considered in many situations. If the client is receiving a large sum of money, there may be other people, such as ex-spouses or boyfriends, who may actively exploit this situation or more passive exploiters such as the Home Shopping Network. In many situations, client suffering from a severe personal injury are on pain medication and often have difficulty making good decisions. A settlement preservation trust can help in this situation.
Asset Protection Trust. Generally, a self-settled trust, including a special needs trust or a settlement preservation trust, do not provide protection from the claims of third party creditors. If this is perceived to be a problem, the settlement preservation trust can be wrapped in an asset protection trust in states, such as Delaware, that provide for such trusts.
Medicare Set-Aside Arrangements. A determination should be made as to whether the client requires a Medicare Set-Aside Arrangement. Since 2001, the Centers for Medicare and Medicaid Services (CMS) has strictly enforced this requirement in Worker’s Compensation cases. However, the law clearly applies to third party liability cases. The Medicare, Medicaid and SCHIP Extension Act of 2007 requires reporting of personal injury cases involving Medicare recipients. Both the New York region of CMS, which governs New Jersey, and the Philadelphia region of CMS, which governs Pennsylvania, have stated that the Medicare Secondary Payer Act applies in third party liability cases. They acknowledge that enforcement has been lax, but take the position that the act cannot safely be ignored. Some regions enforce the MSP on a random basis in larger settlements.
Guardianship. If the client is incompetent, appointment of a family member as guardian should be considered.
Probate. In a number of cases, especially wrongful death cases, probate is required.
Lien Resolution. There are a number of liens, including Medicaid, Medicare, ERISA and others, that need to be addressed at the time of settlement. Frequently, in situations involving a special needs trust the trust is sent to Medicaid for approval only to learn that there was an outstanding Medicaid lien that had not been addressed.
Begley Law Group is pleased to assist personal injury lawyers in implementing all of the action items discussed in this Alert. It is good policy to involve this firm early in the case, so that there is ample time to deal with each of these situations.