Settling Personal Injury Suits and Preserving Benefits

 In Asset Protection, Special Needs Planning

ID 106268537 © Mykola Sosiukin |

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:

(d)(4)(A) or “Pay Back” Trusts

(d)(4)(C) or “Pooled Disability” 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.

Related Articles:

Will the Funding of a Special Needs Trust Affect My SSDI or Section 8?

Administering Special Needs Trusts and Preserving Public Benefits

Special Needs Trusts and Subsidized Housing

Showing 2 comments
  • Debra

    Yes, as you said, “preserving eligibility for benefits can be vital for the individual with a disability” in regards for any type of Special Needs Trusts”. But, a huge problem that I found as a Pooled Trust Beneficiary is this. I received a small settlement due to hospital negligence that nearly killed me, but left me disabled for the rest of my life. Hence the trust was created. Losing my ability to generate income any longer I had my heart set on a 4ever home where I could live as able as could be. I am a single mom. My dream was to leave a small legacy which included my home when I pass away. Here’s the huge slap in the face kicker, cherry on top…When I die, Medicaid will come after the only asset I have for estate payback – my home. Actually our Tenants In Common Home. I have only a 20% ownership interest in the home on the deed. But, I gaurantee that state medicaid will come knocking after I die and force either a lien in the home we shared or expect at least 20% of the newly assessed value!!! That will be at least $60,000.00 that my “DAUGHTER” will be forced to pay, for services I received, due to the negligence of a nurse (whom the state medicaid paid for), that dang near killed me!!!! This is ridiculousness and should be criminal!!! And you better bet ur bippy that my Trustees will be more than cordial handing out the last penny from my fund if it exsisted…oh that’s after they take their 10 grand of course…CRIMINAL!!! Just not right. I’ve suffered enough. I almost died! All that settlement was, was a glorified loan from the state! The same health organization that forked out the settlement funds, gets paid for my services now AND then I have to pay back the state for those services! # trueLifeSNT

    • Harry Margolis

      No system is completely fair and fairness, of course, is in the eye of the beholder. The idea of pooled disability trusts and individual (d)(4)(A) trusts is something of a trade off. Medicaid will pay your health care expenses and permit you to keep the money in trust for other purposes. If there happens to be money in the trust at your death, the state will get repaid. But if not, which is often the case, the state doesn’t get reimbursed. In your case, there will be funds due to the fact that the trust holds an interest in real estate that can’t be spent on your other needs. My hope for you is that you life in and enjoy the house for a long time and that your benefit is substantially more than the $60,000 the state will ultimately be repaid.

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