How to Protect a Personal Injuries Settlement with a Special Needs Trust

If your child (or a loved one) relies on government assistance such as Supplemental security income (SSI) and Medicaid, and has received a settlement for a personal injury, protecting the settlement is essential. A large settlement amount could disqualify a person from receiving these benefits. As the Indianapolis attorneys at Frank & Kraft explain, one effective way to safeguard both the personal injury settlement and eligibility for benefits is by creating a Special Needs Trust (SNT).

Understanding the Risk to Public Benefits

Many government benefits, including SSI and Medicaid, have strict income and asset limits. To qualify for SSI benefits, a recipient cannot have more than $2,000 worth of countable assets. Even if the money is used to pay for necessary expenses, a personal injury settlement can push a recipient past this limit and cause them to lose their benefits. A Special Needs Trust allows a person to receive and use money without jeopardizing eligibility for government programs that are means-tested. The funds in the trust can be used to cover expenses that enhance quality of life, such as medical care not covered by Medicaid, personal care attendants, education, transportation, and recreation.

Types of Special Needs Trusts

When creating a Special Needs Trust, choosing the right type is crucial to fulfilling its purpose. There are three main types of Special Needs Trusts, each serving a specific purpose, including:

First-Party Special Needs Trust

: This trust is funded with the injured individual’s own money, such as a personal injury settlement. It must be set up by a grandparent, parent, legal guardian or court. Any remaining funds in the trust upon the beneficiary’s death may be required to reimburse Medicaid for expenses paid on behalf of the beneficiary.

• Third-Party Special Needs Trust: This type of trust is funded with assets belonging to someone other than the beneficiary, such as a parent or family member. This trust does not require Medicaid reimbursement after the beneficiary passes away, making it an excellent estate planning tool. It is a cost-effective option for those with smaller settlements, who may not have enough money to set up a separate trust. Once the settlement has been placed in the trust it can be used to pay for supplemental expenses, without affecting eligibility for benefits. Setting up a Special Needs Trust requires careful planning and is best accomplished with the assistance of an experienced special needs planning attorney.
• Improper use of Special Needs Trust funds can lead to penalties or loss of benefits. If the impact on benefits has not been carefully considered, funds should not be allocated for expenses covered by SSI and Medicaid, such food and shelter. Instead, they should be allocated for non-covered medical costs, assistive technology, home modifications, and recreational activities that improve the beneficiary’s quality of life.Do You Have Additional Questions about How a Special Needs Trust Can Protect a Personal Injury Settlement?
• For more information, please join us for an upcoming FREE seminar. If you have any questions or concerns regarding how a Special Needs Trust could protect a personal settlement, please contact the Indianapolis special needs planning attorneys by calling Frank & Kraft

at

(317) 684-500

for an appointment. Mr. Kraft’s primary areas of expertise are estate planning and administration. He also assists clients in the areas Medicaid planning, federal taxation, corporate law, real estate, and corporate law.

Latest Posts by Paul A. Kraft Estate Planning Attorney

(see all)