CLOSING THE PERSONAL INJURY FILE AND KEEPING IT CLOSED: ALLOCATION OF SETTLEMENT PROCEEDS

By Thomas D. Begley, Jr., CELA

 

Case Study

John is a 26-year old male who was injured in an automobile accident and suffered serious brain injury.  He will require expensive care for the rest of his life.  John is eligible for SSI, Medicaid, and the TBI Waiver Program.  John lives with his parents, Bill and Diane.  The family lives in a modest row home that is not handicap accessible.  Bill works full-time as a Frito Lay delivery man.  Diane had to give up her job as waitress to provide full-time care for John.  The family has an old van, but it is very difficult to get John in and out of this vehicle.  It has been four years since John’s accident and he has not been able to work during that time.  In addition to presettlement funding loans, Bill and Diane found it necessary to take out a home equity loan on their home and have maxed out their credit cards.  They have also borrowed from family and friends.  John is receiving a significant settlement in his case.

How can the personal injury attorney help this family maximize the settlement?  Personal injury victims have hopes and dreams.  They typically include the following three wishes:

  • new home;
  • new vehicle; and
  • trip to Disney World

In addition, the personal injury victims and their families often have incurred significant debt.  In analyzing John’s case, it becomes apparent that he will need a special needs trust in order to maintain his SSI and Medicaid and his eligibility for the TBI Waiver Program.  The TBI Waiver Program is Medicaid dollars and has financial eligibility tests.  Unfortunately, the special needs trust must contain a payback provision reimbursing the State Medicaid Program for any assistance paid during John’s lifetime.  Therefore, it is always wise to purchase the home outside the trust, if that is possible.  In addition, funds in a special needs trust cannot be used to pay prior debts.  Another problem is that the assets in the special needs trust must be used for the sole benefit of the beneficiary, in this case John, and cannot be used to pay the debts of the parents.

  • Allocation. Once a case is settled, the defendant usually does not care how the money is allocated.  Wherever possible, a claim should be asserted for the parents so that funds can easily be allocated to them from the settlement.  Unfortunately, parents do not always have a claim, but even in those cases most judges will permit an allocation to the parents in recognition of the past services, which the parents have rendered that are well over and above any support obligation they owe to their injured child.  Wherever possible, money should be allocated to the parents to buy the new home.  Avoid having a mortgage on the home, so that it is not lost through foreclosure.

Most clients who come from poor backgrounds see the settlement as a pot of gold.  They don’t understand that if they use too much of the settlement for the home purchase, they will not have enough money to pay the taxes, insurance, maintenance, and other home-operating expenses.  Care must be taken to ensure that there is a sufficient source of income to pay these expenses.  The family should be encouraged to develop a budget to determine if the home purchase will work.

  • Caregiver.  Since the settlement is significant, the trust can hire Diane and pay her to care for John.  There are a myriad of issues that arise when hiring a caregiver that will be the subject of a future column.  The monies paid from the trust to Diane can be used to pay Diane’s pro rata share of the home expenses.  Bill and Diane must understand that if they live in the home, they will also have to pay a pro rata share of the expenses.
  • Vehicle. There is no problem with the special needs trust buying a vehicle.  The trust will not want to hold title to the vehicle for liability reasons, so the mechanics are that the trust buys the vehicle in the name of Bill or Diane and takes a lien.
  • Past Debt. Since the special needs trust cannot pay past debt, this must all be paid out of the settlement proceeds.  The debt incurred by Bill and Diane must be paid out of the monies allocated to them.  This is another reason that an allocation to the parents is important.  Payment of any debt in John’s name must be paid out of the settlement proceeds prior to the funding of the special needs trust.