Special Needs Trusts Can Help Newly Disabled Manage Income from a Court Settlement

If you or a loved one have been disabled by an injury or medical error and are receiving a court-ordered settlement, it is important to understand how a trust can help you manage the income from the settlement. These settlements are set up in one of two ways. You may receive a lump sum or you can elect to receive regular payments over time – a structured settlement. A structured settlement can have a cap or be ongoing for the lifetime of the person who is now disabled.

Using the settlement to fund a Special Needs Trust (SNT) is a way to maintain access to government benefits (Medicaid or Supplemental Security Income) and have access to settlement funds.

SNTs allow these who are dependent on public benefits to receive these benefits and maintain some level of financial independence. A SNT can be used to pay for virtually anything other than ordinary food and shelter expenses which are considered “income” to the disabled beneficiary.

A trust can also preserve the income from the settlement by giving a trustee control of the funds – therefore not allowing family members to abuse funds intended for the person who is disabled or allowing a disabled person to burn through the money without considering his/her long-term needs.

SNTs are subject to many legal restrictions. For example, Special Needs Trusts must always be set up to supplement, rather than supplant, the beneficiary’s special needs and be designed to provide for the special needs of the disabled individual. Integrating them with a structured settlement is complex, so it’s important to work with an experienced attorney like those here at Estate & Elder Law Services.

Some of the other key facts:  

• The structured settlement must identify the SNT as the beneficiary, with the trustee as payee.
• Upon the death of the beneficiary, the SNT may be obligated to repay the state for any Medicaid disbursements made on the person’s behalf. If the documents are improperly drafted, those reimbursements could be demanded earlier and the beneficiary could become ineligible for public benefits.
• The trustee must keep detailed records, handle bills, manage assets and help with tax preparation, as well as ensure that trust distributions maintain the beneficiary’s eligibility which is why it is often better to ask a professional rather than a family member to be the trustee. We are prepared to educate your trustee about the nuances of the SNT.
• The SNT should continue to protect funds from creditors, which is common with a structured settlement.

If you are receiving a settlement or expect to receive one due to an accident, injury or medical malpractice, give us a call in advance, so we can help you set up an appropriate SNT. 302-651-0113.