Settling Personal Injury Suits and Preserving Benefits
People with disabilities can receive substantial funds whether due to settling a personal injury lawsuit or receiving an inheritance. And some people become disabled later in life as the result of a personal injury after they have accumulated savings. In most cases, these individuals do not have enough funds to support themselves indefinitely and must depend on public benefits, such as supplemental security income (SSI), subsidized housing, Medicaid, and SNAP (food stamps), for their basic support. Sometimes, getting money disrupts a carefully-constructed system of support that depends on eligibility for various public benefits programs. Either way, preserving eligibility for benefits can be vital for the individual with a disability. In addition, if the disability is cognitive in nature, the beneficiary may not be able to handle the funds or may be vulnerable to financial abuse by others.
As with parents planning for their children (check out Planning for Your Child with Special Needs), trusts can provide a solution. However, the trusts must be different. For the property and income in these so-called “self settled” trusts not to be taken into account in determining the beneficiary’s eligibility for benefits, they must meet some specific requirements set out in federal law at 42 USC § 1396p(d)(4)(A) and (d)(4)(C). As a result, these are often referred to as “(d)(4)(A)” and “(d)(4)(C)” trusts. The main difference between the two is that (d)(4)(A) trusts are individual trusts for each beneficiary and (d)(4)(C) trusts are managed for many beneficiaries by non-profit organizations. But there are also some specific differences.
Here are links to read up on both kinds of trusts:
Often personal injury claimants are advised to “structure” their settlements. A “structure” is an annuity, which is basically an agreement to be paid over time with certain guarantees. Structures provide certain tax advantages and can help ensure that funds continue to come it, so that they’re not lost to poor spending and financial decisions or to financial predators. However, the income stream from a structure can make the recipient ineligible for public benefits. So, even if some or all of a settlement is to be structured, it can be important that the payments are made to a special needs trust.