POST-SETTLEMENT ISSUES IN WRONGFUL DEATH CASES PART 2
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
There are generally two types of trusts used in connection with personal injury recoveries including wrongful death cases.
Special Needs Trusts
Self-Settled Special Needs Trusts (SSSNTs) are the creature of federal statute.[i] The language in the statute is very brief, but raises many issues.
NOTE: The statute has been amended to permit “the individual” to establish the trust.
“A trust containing the assets of an individual under age 65 who is disabled (as defined in § 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court, if the state will receive all amounts remaining in the trust upon the death of such individual up to the amount equal to the total medical assistance paid on behalf of the individual under a state plan under this title.”
A SSSNT is generally used when a plaintiff is receiving means-tested public benefits such as Supplemental Security Income (SSI), some Medicaid programs, Federally-Assisted Housing or SNAP (Food Stamps).
Requirements of SSSNTs include:
- Assets of the Individual. The trust must contain only assets of the individual trust beneficiary. The personal injury settlement belongs to the plaintiff and, therefore, are the plaintiff’s assets. Family members or friends should not contribute assets to a Self-Settled Special Needs Trust. Family and friends could establish a Third Party Special Needs Trust. The requirements for that type of trust are different and can only be funded with assets of someone other than the injured plaintiff.
- Under Age 65. Occasionally an injured plaintiff age 65 or older wants to establish an SSSNT, but this is not possible except in a few states that permit Pooled Trusts for individuals over age 65. SSSNTs must be established and funded prior to the beneficiary attaining age 65. The only exception to the funding is that if a Structured Settlement is purchased prior to age 65, payments can continue into the SSSNT after the beneficiary attains age 65.
- Disabled. The beneficiary must be disabled as defined in the Social Security Act.[ii] Disability is defined as:
“an individual shall be considered to be disabled for purposes of this subchapter if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months (or, in the case of a child under the age of 18, if he suffers from any medically determinable physical or mental impairment of comparable severity).”
This means that the disability cannot be short term. It must be expected to last at least one year. The fact that the plaintiff is receiving Medicaid does not necessarily mean that he or she is disabled.
- Sole Benefit Of. The Program Operating Manual System (POMS) of the Social Security Administration as well as the statute require that distributions from the trust be for the sole benefit of the disabled individual. In 2019, the Social Security Administration liberalized its interpretation of the sole benefit rule and introduced a new “primary benefit” standard for distributions to third parties for goods and services. The sole benefit of requirement causes considerable difficulty with State Medicaid Agencies reviewing the administration of SSSNTs.
- Established By. The trust can be established by a parent, a grandparent, a legal guardian of the individual, a court, or the individual beneficiary. It should be noted that in most states a court order is required authorizing a guardian to establish a trust. If the court is establishing the trust, the court order must state that the trust is required. The court order should clearly state that the trust is established and required. Approval of the trust by a court is not sufficient.[iii] Judges are reluctant to sign the trust document, so the order should provide that the court directs someone else to sign the document on behalf of the court. An SSSNT may be established by a State Trial Court, a Federal Court, a Probate Court, or a Family Law Court. There is an issue as to whether a Worker’s Compensation Court can establish an SSSNT. This may be state-specific. Does state law authorize a Worker’s Compensation Court, Commission or Agency to enter orders that are equivalent to other constitutionally-created judicial bodies? The established by the court must not already be in existence. Court approval of an already created SSSNT is not sufficient to establish the trust.
- Payback. The trust must contain a payback provision providing that the state Medicaid agency will receive all amounts remaining in the trust upon the death of the beneficiary up to an amount equal to the total medical assistance paid. The trust must contain specific language to that effect.[iv]Reimbursement must be up to an amount equal to the total medical assistance paid on behalf of the individual. If more than one state paid for medical assistance for the beneficiary then all states must be reimbursed. In most states the state is considered a creditor not a residual or contingent beneficiary unless the trust reflects a clear intent that the state be considered a beneficiary rather than a creditor.
[i] 42 U.S.C. § 1396p(d)(4)(A)
[ii] 42 U.S.C. § 1382c(a)(3)(A)
[iii] POMS SI 01120.203 B.8
[iv] POMS SI 01120.203.B.1.g