1. Is the Trust Necessary? Are public benefits, such as SSI and Medicaid, important to the client? The attorney must consider the restrictions on distributions. There are three important factors that must e considered before determining to use a self-settled special needs trust:
- Sole Benefit of Rule. Distributions from self-settled special needs trusts must meet the “sole benefit of” rule. This means that distributions can only be made for the beneficiary of the trust. This is frequently a problem with family members who tend to look at the personal injury settlement as the family bank account.
- Payback Rules. Under federal law,[1] on the death of the beneficiary of a self-settled special needs trust, Medicaid must be repaid for all medical assistance paid on behalf of the beneficiary since birth.
- Payments to Third Parties. Distributions from a self-settled special needs trust cannot be made directly to the trust beneficiary. This would be considered income and would reduce or eliminate not only SSI but Medicaid linked to SSI. A simple solution is to obtain a credit card in the name of a family member (i.e., a parent). That credit card bill can then be presented monthly to the trustee for payment.
If SSI and Medicaid are not important, then it is not necessary to be bound by these restrictions. An alternative to a self-settled special needs trust is a settlement protection trust, which is much more flexible. Other family members are permitted to incidentally benefit from the trust. There is not Medicaid payback, and distributions can be made directly to the trust beneficiary. The advantage of the settlement protection trust is it provides expert management of funds and prevents the beneficiary from squandering the settlement. Both settlement protection trusts and self-settled special needs trusts can be used in conjunction with structured settlements. The structured settlement is simply paid into the trust.
2. Size of Personal Injury Settlement. Is the personal injury settlement large enough so that public benefits are no longer necessary? A third party could use the transferred funds to pay the client’s expenses during the lookback periods and establish a third-party special needs trust with the balance. That strategy might work like this:
- Transfer the personal injury settlement.
- Lose SSI for three years – calculate the value of that benefit.
- Lose Medicaid for five years if an institutional level of care is involved, or no loss of Medicaid if an institutional level of care is not involved. Calculate the value of the lost Medicaid.]
- Advantage
- Third-party special needs trust (TPSNT)
- No sole benefit rule
- No Medicaid payback
Calculation – SSI:
$_________ Current SSI Monthly Benefit
x 36 Months
=
$_________ Total Loss of SSI
Calculation – Medicaid:
$_________ Average Annual Medicaid Benefit, Hospital and Physician
+
$_________ Average Annual Medicaid Payment for Prescriptions
+
$_________ Average Annual Payment for HCBS
+
$_________ Other Annual Medicaid Payment
=
$_________ Total Lost Medicaid Payment
x 5 Years
=
$_________ Total Loss of Medicaid – 5 Years
$_________ Total Loss of SSI
+
$_________ Total Loss of Medicaid – 5 Years
=
$_________ Total Loss of SSI and Medicaid
3. Private Medical Insurance. Is private medical insurance available under the Affordable Care Act (ACA) or in the open market to provide the services that Medicaid would otherwise be called upon to provide? One factor that must be considered is coverage. Typically, insurance under the ACA covers hospitals and doctor visits. It is similar to typical Blue Cross or Aetna policies. Many individuals who suffer from personal injuries need additional coverage for home care or extensive therapies. Insurance policies under the ACA can limit the number of visits for such things as psychological counseling, speech therapy, etc. Medicaid has no such limits. If it is anticipated that the trust beneficiary may eventually require care in a group home, this type of care is not covered by ACA or other private insurance. It is funded with Medicaid dollars.
4. Long-Term Care Planning. Would long-term care planning be a better option than establishing a special needs trust? For example, if a client is in a nursing home, the Medicaid payback could be significant. If the client has a long life expectancy, would traditional Medicaid planning involving transfers of assets to third parties make more sense? For example, suppose the net recovery was $2,000,000. Let’s suppose the private pay rate for the nursing home was $10,000 per month plus the client’s other income. The cost would be $600,000 plus inflationary increases over five years. Would it be better to retain this sum of money, have the client private pay, and transfer the balance of the funds to other family members to either use for themselves or to establish a third-party special needs trust for the nursing home resident? Nursing home abuse cases frequently involve plaintiffs who are over age 65 and who are ineligible for a self-settled special needs trust. In those situations, long-term care planning is the only truly viable strategy.
5. Would a guardianship account be as effective as a special needs trust? The problem with a guardianship account is that the funds in that account are considered an “available resource” for public benefits purposes. It is also sometimes difficult to get a court to approve distributions from a guardianship account. In almost every instance, a settlement protection trust is a better alternative than a guardianship account.
6. Alternatives to Public Benefits. While public benefits may be the immediate source of medical treatment, food, or housing, are there other alternatives that could be found to obviate the need for a special needs trust? Where the settlement is large, public benefits may be unnecessary. Depending on the type of coverage the plaintiff needs, private insurance may be available, either on the open market or through the ACA. The monthly SSI payment may not be important.
7. Costs of drafting the trust and administering it must be considered. The cost of drafting a trust is usually very modest in comparison to the total value of the personal injury settlement. The cost of administering the trust is also minimal.
8. Transfer of Assets. Can the beneficiary transfer assets to a third party, wait for three years for SSI, or five years for institutional Medicaid? See item #2 for a calculation as to how this may work.
[1] 42 U.S.C. §1396p(d)(4)(A).
