by: Begley Law Group

by Thomas D. Begley, Jr., Esquire, CELA

            In some personal injury cases the victim is receiving important means-tested Social Security Income (SSI), Medicaid, or other important means-tested public benefits.  These plaintiffs require a Self-Settled Special Needs Trust (SSSNT) in order to maintain their benefits.  In other situations, the plaintiff is a minor or incapacitated adult.  These individuals usually require a Settlement Protection Trust (SPT).  Most personal injury victims are totally unfamiliar with trusts and are concerned that once their money is deposited into the trust, they will never see it again.  Other plaintiffs have high expectations of how long money will last and have not really analyzed their future situation.

Immediate Cash Needs

A good way to address these situations is to have a counseling session.  At the meetings the plaintiff and/or family will identify immediate cash needs and estimated costs.  Examples of immediate cash needs might include the purchase of a new home, furniture, a vehicle, clothing and shoes, a vacation, a computer, an iPad, a cell phone, repayment of outstanding debt, and funeral arrangements if appropriate.

Monthly Budget

At the same meeting consideration should be given to development of a monthly budget.  A budget usually includes shelter expenses, such as rent, real estate taxes, utilities, and insurance.  Other items would include telephone bills, cable television, Internet, trash and garbage removal (if applicable), condominium or home owner association fees (if applicable), and ongoing needs for equipment.  The monthly budget would also include money for auto insurance, driver’s license and registration, gas, oil, maintenance, and other transportation-related expenses.  The budget should also include money for food at home, restaurants, household supplies, clothing and shoes, dry cleaning, commercial laundry, hair care, vacations, entertainment, alcohol, tobacco, newspaper, magazine, life insurance, professional expenses, prescription drugs, non-prescription drugs, cosmetics, toiletries and sundries, unreimbursed medical, unreimbursed psychiatric or psychological counseling, unreimbursed dental, and unreimbursed medical insurance.

The 4% Rule

One of the considerations that is often overlooked is how long the money will last.  Studies show that the average personal injury settlement lasts from three to five years.  In 1994, a financial advisor named William Bengen published a paper titled “Determine Withdrawal Rights Using Historical Data” that was published in the Journal of Financial Planning.  The paper really addressed retirement savings.  Essentially, Bengen examined a significant amount of data and concluded that most retirement portfolios last at least 30 years and some remained intact for 50 years or more.  His conclusion was that if the retiree safely spent about 4% of the retirement savings in the first year and 4% adjusted for inflation in succeeding years, the money would last for the lifetime of the retirement account beneficiary.  The same factors should apply in a personal injury settlement trust be it an SSSNT or a SPT.   Therefore, during the counseling session this strategy should be explained to the plaintiff and/or family to establish realistic expectations.

By introducing the plaintiff or family to the trustee, everyone begins to have a comfort level with one another.  By developing the budget and showing the clients what monies can be expended for and explaining the availability of a credit card or debit card, the client is also at ease.

The Players

            The players at a counseling session involving a trust should include:

  • The Plaintiff, if appropriate.
  • The family of the Plaintiff, if appropriate.
  • The Trustee.
  • The Elder & Disability Law Attorney.
  • The Personal Injury Attorney.
  • The Structured Settlement Broker, if appropriate.

General Concepts

            If a Self-Settled Special Needs Trust is involved, the plaintiff is to be made aware of the following legal concepts:

  • Sole Benefit Of. The parties must understand that the monies in the trust may be expended “for the sole benefit of” the person with disabilities.
  • Pro Rata Share. If persons other than the beneficiary benefit from trust distributions, they must pay their pro rata share.  Commonly, this situation arises where the trust owns a home and the individual with disabilities lives in the home with other family members.
  • Legal Obligation of Support. Where there is a Self-Settled Special Needs Trust funds cannot be used to discharge a parent’s legal obligation of support, unless the parents are too poor to discharge this obligation.
  • Distributions Caps. In New Jersey, any distribution from a Self-Settled Special Needs Trust in excess of $5,000 requires 45 days advance notice to the State Medicaid Agency.
  • Reporting Requirements.In New Jersey the State Medicaid Agency requires an annual accounting of trust activities.

The Mechanics

            A corporate trustee should always be used for trusts.  Family members are well intentioned. They often work for free but very frequently they mishandle the trust administration.  The corporate trustee will obtain a credit card or a debit card for the plaintiff and/or responsible family member.  The expenses outlined in the budget will be charged to the credit card, and the credit card bill and receipts will be sent to the corporate trustee to be paid on a monthly basis.  Alternatively, if there is a debit card rather than a credit card, the expense will be paid by the debit card and the debit card will be replenished on a monthly basis.

            Distributions required outside the budget must be cleared with the corporate trustee in advance.  Any distribution in excess of $5,000 also requires 45 days prior notice to Medicaid, although this can be waived in the case of an emergency.