TYPES OF TRUSTS IN PERSONAL INJURY RECOVERIES
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA
There are five types of trusts generally used in cases involving personal injury recoveries. The type of trust to be selected depends on the plaintiff’s situation. The types of trusts and when to use them are as follows:
- Settlement Protection Trust. The Settlement Protection Trust is simply a Support Trust. This is an alternative to simply leaving money in the Surrogate’s Office. Surrogate’s accounts are invested in Certificates of Deposit and pay very little interest. Another alternative is a Structured Settlement, however, at this time Structured Settlements also pay very little interest and the monies are inaccessible except pursuant to the terms of the Structure. The trust is administered by a trustee, a corporate trustee is generally preferred.
When to Use: A Settlement Protection Trust is generally used where the plaintiff is a minor or incapacitated person but not receiving any public benefits such as SSI or Medicaid. They are also used when the plaintiff is receiving SSI and Medicaid, but the settlement is large and public benefits are no longer required. The advantage to Settlement Protection Trust is that the money received from the settlement is professionally invested. The trust prevents the plaintiff from squandering the money, but the funds in the trust are available to the beneficiary for needs such as purchasing a home or vehicle, college education, paying off debt including student loans, purchasing technology such as computers, iPads and cell phones, and paying monthly bills for shelter expense, transportation and personal items. A trustee can establish a budget with the plaintiff and either fund a checking account with a monthly distribution or provide the plaintiff with a credit card or debit card. The plaintiff would use the credit card or debit card to purchase items within the budget and send the bill and receipts to the trustee on a monthly basis.
- Special Needs Trust. A Special Needs Trust is used for a personal injury victim, if the plaintiff is receiving means-tested public benefits. If the plaintiff is receiving SSI and receives more than $2,000, SSI will be lost. If the plaintiff is receiving SSI in New Jersey, he or she automatically receives Medicaid. The SSI-linked Medicaid would also be lost. There are other pathways to Medicaid beside SSI. Some of these Medicaid programs have income and/or asset tests, others do not. A Special Needs Trust may be necessary to maintain Medicaid benefits even though the Medicaid is not linked to SSI, but this is not always true. Federally Assisted Housing programs and SNAP (Food Stamps) also are means-tested. Special Needs Trusts may be required in those situations.
- Settlement Protection Trust with Special Needs Provisions. Under this arrangement there is one document with two subtrusts. The first subtrust is a Settlement Protection Subtrust, which is funded initially. At some point in the future if the plaintiff needs means-tested public benefits, the trustee can move trust asset from the Settlement Protection Subtrust to the Special Needs Subtrust.
When to Use: These trusts are generally used when the plaintiff is under 18 and lives with parents who have income and/or assets. Until the plaintiff is 18, the income and assets of the parents are deemed to the child and the child is ineligible for SSI. When the child is 18 the income and assets of the parents are no longer deemed to the child and the child would be eligible for SSI. In those situations, it is useful to establish a Settlement Protection Trust, which is more flexible than a Special Needs Trust, and on the child’s 18th birthday the trustee can transfer funds from the Settlement Protection Subtrust to the Special Needs Subtrust so that the plaintiff will qualify for SSI and SSI-linked Medicaid and any other means-tested public benefits to which he or she may be entitled. There are other situations where an individual is not receiving means-tested public benefits at the time of settlement but may receive them in the future, and a Settlement Protection Trust with Special Needs Provisions is useful in these situations.
- Special Needs Trust with MSA Provisions. If a plaintiff is receiving Medicare or has a reasonable expectation of receiving Medicare within thirty months, he or she should consider establishing a Medicare Set-Aside Arrangement (MSA). There is a division of authority around the country as to whether funds in an MSA constitute countable resources. There are no cases in New Jersey or Pennsylvania. The MSA Subtrust is generally managed by a professional Medicare custodian retained by the trustee.
When to Use: If a plaintiff is receiving means-tested public benefits and is establishing an MSA, a Special Needs Trust with MSA Provisions should be considered.
- Settlement Protection Trust with Special Needs and MSA Provisions. In considering whether to use a Settlement Protection Trust with Special Needs and MSA Provisions are essentially the same as in scenarios 3 and 4. If the plaintiff is not receiving public benefits at the time of settlement but may receive them in the future, a Settlement Protection Trust with Special Needs Provisions should be considered and if an MSA is established, an MSA Subtrust should be established.