If you have a child (or another loved one) who relies on government benefits such as Supplemental Security Income (SSI) or Medicaid and who has received a personal injury settlement, protecting that settlement is crucial. Without proper planning, a large sum of money received from a settlement could disqualify an individual from these much-needed 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. For instance, to qualify for SSI, a recipient generally cannot have more than $2,000 in countable assets. A personal injury settlement, even if used for necessary expenses, may push a recipient over this limit, leading to the loss of benefits. This is where a Special Needs Trust becomes an invaluable tool.
What Is a Special Needs Trust?
A Special Needs Trust is a legal arrangement that allows a person with disabilities to receive and use funds without jeopardizing their eligibility for means-tested government programs. 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 established by a parent, grandparent, legal guardian, or a 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. It does not require Medicaid reimbursement upon the beneficiary’s passing, making it a valuable estate planning tool.
- Pooled Special Needs Trust: This trust is managed by a nonprofit organization and allows multiple beneficiaries to pool their resources while maintaining separate accounts. It provides a cost-effective solution for individuals with smaller settlements who may not have the resources to establish a standalone trust.
How a Special Needs Trust Protects a Personal Injury Settlement
A properly established Special Needs Trust protects a personal injury settlement by ensuring that the funds are not counted as personal assets. Once the settlement is placed in the trust, it can be used for supplemental expenses without affecting eligibility for government 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. The funds should not be used for expenses covered by SSI or Medicaid, such as food and shelter, unless the impact on benefits is carefully considered. 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 additional questions or concerns about how a Special Needs Trust can protect a personal injury settlement, contact the experienced Indianapolis special needs planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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