My client received a personal injury settlement: does she need a Special Needs Trust?

If a personal injury lawyer has a client who needs a Special Needs Trust and the lawyer fails to advise the client appropriately and take steps to see that such a trust is established, the personal injury lawyer may have liability to the client under a malpractice claim.

Self-Settled Special Needs Trusts were authorized by Congress in 1993. If the trust is properly established and administered, the injured plaintiff can continue to remain eligible for public benefits, such as SSI and Medicaid, and benefit from the use of the personal injury settlement. If the trust is not established, then the personal injury recovery is a countable asset for determining eligibility for such programs as SSI and Medicaid, and these benefits are lost. Assets in the Special Needs Trust are not counted. The income does not count for means-tested public benefit purposes, as long as income from the trust is distributed directly to third-party providers of goods and services and is not for food and shelter. If income is used for food and shelter, the SSI benefit is simply reduced by a maximum of one-third plus $20. Medicaid eligibility is unaffected.

In determining whether a client needs a special needs trust, a determination must be made as to what benefits the client is receiving. Benefits that do require a Special Needs Trust include:

SSI
Medicaid
Medicaid Waiver Programs
Section 8 Housing
SNAP (Food Stamps)
Residential Housing through the Division of Developmental Disabilities (DDD)

Public benefits that are not means-tested are:

SSDI
Medicare
Special Education
Children’s Health Insurance Program (CHIP)

SSI and SSDI are income maintenance programs. To receive SSDI, a client must have a work history or be the child of parents who had a work history and passed away, retired, or became disabled. Medicare and Medicaid are medical payment programs. SSI and Medicaid are welfare programs and have income and asset eligibility requirements. A person receiving SSI typically receives Medicaid automatically. However, it is possible to receive Medicaid without receiving SSI.

A person receiving SSDI receives Medicare after two years. SSDI and Medicare are insurance programs paid by payroll deduction and have no income or asset eligibility tests.

An analysis must be made as to what benefits the client is receiving. Frequently, clients confuse SSI with SSDI and Medicare with Medicaid. Written evidence, such as letters from Social Security and a medical insurance card, should be obtained to assist in this determination.

In settlements exceeding $100,000 to $200,000, the general practice is to establish a standalone Special Needs Trust for the individual plaintiff/beneficiary. Careful consideration should be given to using the services of a professional trustee. A professional trustee has expertise in investing trust assets, SSI, Medicaid and other public benefits law, federal and state tax issues, and can provide considerable assistance in navigating the public benefits maze and in advocating for the disabled plaintiff. For smaller settlements, a Pooled Trust should be considered. The assets held by the trustee of the Pooled Trust are combined for investment management purposes, but each beneficiary maintains a subaccount and receives regular statements showing deposits and disbursements.

Visit the Begley Law Group website at www.begleylawgroup.com for a Quickscreen/Questionnaire to determine whether a Special Needs Trust is required.