If you have been successful in a personal injury lawsuit and received, or anticipate receiving, a significant financial settlement, you may be wondering what you should do with that income. This can be a very important decision, especially if you either currently receive government benefits, or may need to apply for them in the future. If this applies, you may need to know how to protect a personal injury settlement.
Why would protection be necessary?
Eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI) requires very limited income and assets. So, depending on the amount of your settlement, that income could jeopardize your government benefits. The asset maximum for SSI and Medicaid is $2,000 for individuals. Protecting eligibility for these need-based benefits requires planning. The most common method is having the court order the transfer of the settlement proceeds into a Special Needs Trust. This method also works for structured settlements.
Do I need a special needs trust?
Whether you need a special needs trust depends on the kind of benefits you receive. If your benefits are considered “mean-tested” benefits, like SSI, Medicaid, and Food Stamps, the best option is for a trustee to manage the assets through a special needs trust. The term “means-tested” refers to those benefits that are only available based on low income. There are other types of government benefits that may be available, regardless of income. Some examples are Social Security Disability Income and Medicare.
What is a Self-Settled Special Needs Trusts?
The purpose of this type of trust is to allow an injured plaintiff to remain eligible for government benefits, while still benefiting from a personal injury settlement. Without a Self-Settled Special Needs Trust, your personal injury settlement would most likely be included as an asset when your eligibility is determined for need-based programs.
As long as the income from the trust is paid directly to third-party providers of goods and services, those funds will not be counted for purposes of means-tested benefits. Remember that the trust funds cannot be used for food or shelter. A special needs trust can be used to protect assets acquired from a divorce settlement, retirement plan, life insurance policy or inheritance, as well.
What about pooled trusts?
If the settlement amount is rather large, say—over $100,000, an individual special needs trust is probably the best option. However, if the settlement is smaller, a pooled trust might be a better choice. With pooled trusts, the funds are combined with those of other beneficiaries for investment purposes. Either way, you can consider using the services of a professional trustee with experience in handling public assistance issues.
If you have questions regarding special needs trusts, or any other special needs planning issues, please contact Sexton, Bailey Attorneys, PA online or by calling us at (479) 443-0062.
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