When a person is injured seriously, disability may result. A substantially disabled accident victim may require government assistance in the form of Medicaid, Supplemental Security Income and other governmental providers. The settlement of a personal injury lawsuit, however, might produce funds (paid in a lump sum or in periodic payments, as from an annuity) which would disqualify the victim from government assistance. This would be true even if the payments are made in a structured settlement. The solution to this problem is the Special Needs Trust ( "SNT").
An SNT is a professionally managed fund, usually administered by a corporate trustee such as a bank if the amount of the trust is over $200,000; smaller trusts are better served by a professional trustee working on an hourly basis, possibly including a trustee committee consisting of family members. Accident victims would use a Supplemental Care SNT, designed to serve as a secondary source of benefits for the victim after all available government benefits have been exhausted.
The three main advantages of an SNT can be summarized as follows:
- Maintains a disabled individual's eligibility for critical government benefits
- Supplements treatment, services, and care offered by Medicaid & state programs
- Shelters assets from creditors & protects beneficiaries from financial exploitation
Very generally, a trust is a legal entity which permits one person, the donor, to give something to a second person, the trustee, with qualifications that it must be used for the benefit of someone else, the beneficiary. Assets are owned by the trust. The trustee is usually given the power to manage those assets (e.g., to sell assets, to invest trust funds). In addition, in the case of an SNT, the trustee has the discretion to use trust assets for the benefit of the special needs child. The two main duties of the trustee are:
- Coordinate public benefit programs and use trust assets to enhance lifestyle of beneficiary
- Administer the trust and maintain compliance with all regulations
An SNT may seem appropriate at first, but might not be upon further investigation. Trusts are governed by state laws and should only be drafted by an attorney who is familiar with this area of law. In addition to legal fees, there may be costs associated with transferring assets to, and administration of, a trust. One important consideration is whether some or all of the injured person's settlement should be used to repay government agencies upon his death, or whether it would be more fair under the circumstances for the settlement to pass to the beneficiaries of his estate. Upon death of the child, the SNT will have to repay the benefits previously given by the government to the child, prior to paying any remainder beneficiaries such as the parents of the child.
The legal basis of the SNC is 42 USC 1396(p)(d)(4)(A). For more information about SNTs, click on the following links, which will open in new windows:
- Financial Planning: Special Needs Trusts
- Your Client May Need A Special Needs Trust: Tips For Creating A Special Needs Trust For Disabled Clients
- The expense calculator by MetLife is helpful in estimating how much of your child's needs might be provided by the annuity; be sure to use the current rate of return as given by your attorney, structured settlement specialist, or financial planner.
- A guide for attorneys, including an admonition against settlement of personal injury cases without considering the necessity of an SNT.
- Choosing the Ideal Trustee of Your Child's Special Needs Trust.