Special Needs Trusts and Personal Injury Settlements

When a disabled person receives a personal injury settlement, it is often a good idea to set up a Supplemental Needs Trust to receive those monies in order that any public benefits the disabled person receives not be disrupted or lost altogether.

Money received in a personal injury lawsuit are considered to belong to the disabled individual.  Therefore, a self-settled (sometimes known as a (d)(4)(A) trust, named after the section of the U.S. code that permits these types of trusts) must be established for the benefit of the disabled individual.

New York has established that it is in the public interest to allow a disabled person to use those monies to supplement government benefits while the disabled person is alive.

If the settlement is large (over $100,000) it may be a good idea to set up an individual Supplemental Needs Trust.  If it is smaller, the disabled person should consider whether a pooled trust can be set up.  This should be negotiated with the Department of Social Services (DSS) at the time of the settlement or conclusion of the lawsuit.

Payback Requirement

Funds left in and individual SNT  after the beneficiary dies must be used to pay back Medicaid.  Funds in a pooled trust are retained by the trust to be used by other disabled beneficiaries.

Individual Special/Supplemental Needs Trusts

In order to establish an individual SNT, the beneficiary must be:

  • under the age of 65
  • must be established by parent, grandparent, guardian or by an order of the court

Pooled Trusts

In order to establish a pooled trust, the beneficiary:

  • May be of any age, although establishing a pooled trust if the beneficiary has reached the age of 65 may affect the individual’s Medicaid.
  • May be established by the disabled individual themselves.

A Complex Trust

The use of these trusts involve sophisticated knowledge of both tax law and the numerous types of government benefits an individual may be entitled to receive.  A poorly drafted SNT may cause an individual to lose their public benefits.  Additionally, once a settlement is received, if the funds are still in the personal injury attorney’s trust account at the end of the month, the funds may be considered a resource, causing a loss of benefits such as Medicaid, or SSI.  It is very important to have a knowledgeable attorney establish these trusts.

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