Personal Injury Settlements And Special Needs Trusts
Accidents are indiscriminate, they can happen to anyone. People of all socioeconomic classes have accidents and suffer injuries because of the negligence of another. People who have a good income through a skilled job can suddenly find they are injured and unable to return to that line of work and enjoy that level of earning potential. It can take months, even years, to be compensated for an injury. Many people have no place to turn except to government programs that can assist them in keeping their family sheltered and fed. Under the law, everyone has the right to be compensated for his or her injuries. The questions attorneys are asked all the time is, “How will a settlement affect my benefits?”
By establishing a Special Needs Trust, the injured party can retain some of the government benefits they are receiving that may be assisting them before or after the accident, while being compensated for their injuries. These benefits could be SSI and Medicaid. If a Special Needs Trust is properly established and maintained, the injured party can obtain compensation for things they may need to assist them, without jeopardizing the benefits they have battled to have. Without a Special Needs Trust, these benefits would be lost.
To qualify for the shelter of a Special Needs Trust, the beneficiary must be “disabled” under Federal Law. Which means, he or she must be, “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of no less than 12 months.” Thousands of people every year are injured in car accidents, construction accidents and other personal injury accidents that leave them able to qualify for SSDIB and other programs.
Assets in a Special Needs Trust, or a supplemental needs trust, as they are sometimes called, are not counted for means-tested public benefits, providing the compensation is distributed to the trustee to be used for services and goods, not food, shelter and utilities. Losing government benefits can be catastrophic for an individual with disabilities.
The need for a Special Needs Trust is dependent on the benefits the injured party is receiving.
The following benefits are subject to a means test:
- SSI
- Medicaid
- Section 8 Housing
- SNAP
- Housing by the Division of Developmental Disabilities (DDD)
These public benefits are not means-tested:
- SSDIB
- Medicare
- Special Education
Requirements Of A Special Needs Trust
1. A Special Needs Trust is an irrevocable trust. It is set up as a standalone entity and needs to have a trustee to oversee it. The Trust also needs to have a tax ID number and file annual tax returns.
2. The injured party/beneficiary cannot be the trustee. There must be someone trusted by the beneficiary to administer the trust. The trustor is responsible for setting up the trust and funding it. In a personal injury case, part of the negotiation for settlement can be to put the compensation into the trust. The beneficiary never actually has anything to do with the settlement; it goes to the trustee to administer with the rest of the assets.
3. The Trustee has the discretion to provide for the needs of the beneficiary. The trust can assist the beneficiary by providing a handicapped- automobile, special equipment, and educational funding. The trust is used for the things that government or public assistance will not pay for.
4. The assets of the trust cannot be reached by the creditor of the beneficiary, because the beneficiary does not own or control the trust. Any settlement the injured party/beneficiary receives is still subject to subrogation, under Texas law.
There needs to be a great deal of consideration to who the trustee of the Special Needs Trust will be. There are professional and corporate trustees, but a trusted family member or friend could perform the functions of the trustee, as well. Special Needs Trusts are more difficult to administer than some other trusts since they involve reporting to Social Security, Medicaid and other governmental programs.
Special Needs Trusts can also be used in conjunction to structured settlements. A structured settlement is an annuity that pays the beneficiary over time, instead of one lump sum of money. The insurer of the defendant makes monthly payments to the Special Needs Trust. These payments are for the life of the beneficiary. There is generally a guaranteed portion of the structured settlement that can be paid to a survivor of the beneficiary, if they die prematurely. In cases of spinal cord injuries and brain injuries, life expectancy can be difficult to determine.
Special Needs Trusts are also important to keep the beneficiary’s money safe and used for their needs. It is not impossible for family members to try to squander the compensation the injured person desperately needs to have a better quality of life. A trustee can make sure that the money is used appropriately, for the beneficiary. The beneficiary may need a customized wheelchair beyond what Medicaid/Medicare will pay for. Special education might be needed to learn sign language or other means of communication.
Special Need Trusts are a wonderful gift to make sure disabled children are cared for after the death of their parents. Children suffer debilitating brain injuries from accidents, near drowning and other accidents. These children will need financial assistance all of their lives and may outlive their parents.
Any assets in the Special Needs Trust upon the death of the beneficiary might have to be used to reimburse the state for medical expenses. Depending on state law and how the Trust is set up, assets may be able to be passed on to siblings or other family members.
A Special Needs Trust must be carefully written to protect government benefits for the injured party. The Trust must be just as carefully distributed to maintain government benefits. If an accident leaves a loved one requiring a nursing home, long-term care facility, or other rehab, few families have the resources to pay for that type of medical service. Depending on the government, that may be the only way to provide them with medical assistance.
If you have suffered a personal injury, let us help. Call us today for a free consultation.