A special needs trust (“SNT”), also referred to as a supplemental needs trust, can protect the settlements for people who suffered debilitating personal injuries without affecting their eligibility for means-tested public benefits such as Medicaid or Supplemental Security Income (“SSI”). Special needs trusts are effective both when an injury will result in the need for public disability assistance or when an individual receiving the settlement cannot or should not manage funds on their own as a catholic estate planning lawyer can explain.
Special Needs Trusts For Personal Injury Settlements
A special needs trust is a third-party trust created by either a parent, grandparent, legal guardian, or the court, for the benefit of a disabled person under the age of sixty-five (65). The trust must state that Medicaid shall be reimbursed for amounts paid from the balance of the trust at the disabled person’s death. The trust may be revocable or irrevocable.
The trust must be drafted in accordance with specific rules of the program of which the personal injury plaintiff is the recipient. Typically, the trust must be funded after any Medicare or Medicaid liens on the personal injury plaintiff’s settlement have been paid.
Limitation Of A Special Needs Trust
Special needs trusts are somewhat restricted in their use. Indeed, the trust’s assets must be for the exclusive benefit of the individual with disabilities. This means that the beneficiary of the trust cannot use the funds to donate to charities or give to family members.
The trust funds must be used exclusively for the beneficiary’s supplemental or special needs. For example, trust assets can be used for medical necessities such as medical and dental expenses not covered by Medicaid, costs for home care or trained medical staff, medical equipment, eyeglasses, and transportation costs (including buying and maintaining a vehicle). Trust assets can also be used for non-medical enhancements to the beneficiary’s life, such as vacations, movies, trips, travel, and other activities and property to enhance the beneficiary’s self-esteem or comfort.
Choosing A Trustee
One of the most important decisions in setting up a special needs trust is the selection of a trustee. The trustee’s job is to manage the trust assets, administer the trust, make determinations about distributions to the beneficiary, and to ensure that the trust complies with all legal and administrative requirements. The last role is of utmost importance when the intent is preserving the beneficiary’s eligibility for government benefits.
Some of the most common choices for trustees are parents, family members, family friends, banks and trust companies, corporate trustees, and attorneys. While all options are adequate, special needs trusts are particularly conducive to attorney trustees. Attorneys make great trustees because of the eligibility, investment, and special needs considerations as our friends at Aptt Law LLC can attest.
If a plaintiff in a personal injury case will need public benefits such as Medicaid or Supplemental Security Income (SSI) then a special needs trust may be the best vehicle for them. The advantages to a special needs trust include allowing the beneficiary to retain eligibility for means tested government benefits such as Medicaid and SSI. Special needs trusts also provide asset protection, protecting personal injury settlement proceeds from creditors or from being squandered by the injured plaintiff. Properly structured, a special needs trust can also provide tax benefits as well as flexibility for the beneficiary’s changing needs over time.
If you are interested in this kind of trust, reach out to an attorney near you for help.