Public Assistance Preservation – Special Needs Trust 101

Suffering even a moderate personal physical injury can create difficult challenges both financially and emotionally for even the strongest among us. When a personal injury case is settled, frequently there are insufficient funds to provide for all of the future medical needs of the injury victim and despite the recovery there is a need for public benefits. If a person is disabled and meets financial eligibility requirements, they can qualify for needs based government assistance which can provide for some of their basic medical and monetary needs.

Medicaid and Supplemental Security Income (hereinafter SSI) are income and asset sensitive public benefits that require special planning to preserve. In many states, one dollar of SSI benefits automatically provides Medicaid coverage. This is very important, as it is imperative in most settlement situations to preserve some level of SSI benefits if Medicaid coverage is needed in the future. SSI is a cash assistance program administered by the Social Security Administration. It provides financial assistance to needy aged, blind, or disabled individuals. To receive SSI, the individual must be aged (sixty-five or older), blind or disabled and be a U.S. citizen. The recipient must also meet the financial eligibility requirements. Medicaid provides basic health care coverage for those who cannot afford it. It is a state and federally funded program run differently in each state. Eligibility requirements and services available vary by state. Medicaid can be used to supplement Medicare coverage if the client is eligible for both programs. For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles.

There are planning devices that can be utilized to preserve eligibility for Medicaid and SSI benefits after a disabled injury victim settles his or her case. A special needs trust (“SNT”) can be created to hold the recovery and preserve public benefit eligibility since assets held within a special needs trust are not a countable resource for purposes of Medicaid or SSI eligibility. The creation of special needs trusts is authorized by the Federal law. Trusts commonly referred to as (d)(4)(a) special needs trusts, named after the Federal code section that authorizes their creation, are for those under the age of sixty five. However, another type of trust is authorized under the Federal law with no age restriction and it is called a pooled trust, commonly referred to as a (d)(4)(c) trust. These trusts are discussed fully below.

A personal injury recovery can be placed into a SNT so that the victim can continue to qualify for SSI and Medicaid. Federal law authorizes and regulates the creation of a SNT. The 1396p provisions in the United States Code govern the creation and requirements for such trusts. First and foremost, an injury victim must be disabled under the Social Security definition of disability in order to create a SNT. There are three primary types of trusts that may be created to hold a personal injury recovery each with its own requirements and restrictions. First is the (d)(4)(A) special needs trust which can be established only for those who are disabled and are under age 65. This trust is established with the personal injury victim’s recovery and is established for the victim’s own benefit. It can only be established by a parent, grandparent, guardian or court order. The injury victim can’t create it on his or her own. Second is a (d)(4)(C) trust typically called a Pooled Trust that may be established with the disabled victim’s funds without regard to age. A pooled trust can be established by the injury victim unlike a (d)(4)(A). A Pooled Trust operates in the same way as a (d)(4)(A) SNT with the exception that at death Medicaid is only repaid to the extent that funds are sufficient and if insufficient the funds are retained by the non-profit trustee of the pooled trust. A (d)(4)(A) SNT does not retain funds and pays back Medicaid whatever is left over in the trust at death. If funds remain after Medicaid is repaid with either a (d)(4)(A) and some (d)(4)(C) trusts, the family can receive the residue.

Third and last is a third party SNT which is funded and established by someone other than the personal injury victim (i.e., parent, grandparent, charity, etc. . .) for the benefit of the personal injury victim. The victim still must meet the definition of disability. There is also a less common trust that can be utilized if an elderly injury client has too much income from Social Security to qualify for some Medicaid based nursing home assistance programs. This trust is authorized by the federal law under (d)(4)(B) and is commonly referred to as a Miller Trust.

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