Using Settlement Proceeds to Fund a Special Needs Trust
By Amy E. Duff, Esq.
When a disabled individual receives a settlement in a personal injury case due to medical malpractice, automobile accidents and similar events, care should be taken at the time of the settlement to protect that person’s eligibility for government benefits such as Supplemental Security Income (“SSI”) and Medicaid. Many important government benefits have an economic means test; meaning that to be eligible an individual must have assets below $2,000 and income below a specified amount. Therefore, unrestricted access to settlement funds will cause an individual to be ineligible for these benefits.
Many individuals with disabilities require care and services for their life and the costs of those services could quickly deplete even a large settlement. Therefore, it frequently is desirable to conserve settlement funds in a manner that will provide benefit to the disabled individual while ensuring that the funds do not affect eligibility for government benefits. That goal can be accomplished by placing settlement proceeds into a special needs trust. Fortunately, under both federal and New Jersey law, settlement proceeds can be placed into a special needs trust that is for the sole benefit of the disabled individual. These trusts are called “self-settled” trusts because they are funded with the disabled individuals’ own funds. They also are sometimes called an “OBRA ‘93” trust, after the federal law that permits their creation.
By placing settlement funds into a properly drafted self-settled trust, those funds will be available to supplement government benefits and enhance the quality of life for the disabled individuals. Trust funds can be used to reimburse family members for expenses relating to advocating for the disabled individual or to purchase services to monitor the person’s care. Trust funds also can be used to address gaps in services; for example, to purchase extra therapies, elective surgery and dental care, supplemental medical insurance, transportation, recreation, and specialized training not covered by government benefits. In addition, trust funds can be used to purchase items for the benefit and enjoyment of the disabled individual, such as computers, video games, magazine subscriptions, and the like. Trusts can even purchase homes and vehicles.
here are specific requirements for self-settled trusts that are not imposed on trusts funded by third parties as part of an estate plan. For example, unlike special needs trusts set up by parents as part of their estate plan, self-settled trusts must have a “payback provision” providing that on the death of the beneficiary of the trust the state Medicaid agency will receive all amounts remaining in the trust up to the amount of assistance provided. The requirements for self-settled trusts are complicated; therefore, it is critical that the personal injury attorney consult with an attorney with expertise in drafting and administering self-settled trusts in order to assure that the trust protects eligibility for important government programs. Our firm frequently works with personal injury attorneys and families to establish self-settled trusts.
Hinkle,
Fingles, & Prior maintains a multi-state law practice
with offices in Lawrenceville, Marlton, and Florham
Park, New Jersey, and Plymouth Meeting and Bala Cynwyd,
Pennsylvania. They lecture and write frequently on
topics of law, aging, disability and estate planning
and are available
to speak to groups in New Jersey
and Pennsylvania at no charge.
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2009 Hinkle, Fingles & Prior, Attorneys at Law. All rights reserved.
