Here at Beam & Raymond, most of our clients receive SSI (Supplemental
Security Income) benefits to aid in the care of their disabled loved ones.
For those clients who do not, our office will work diligently to help
them get those benefits. But clients will often ask if they will lose
SSI benefits if a settlement or jury verdict is reached in their favor.
Thanks to what is called a special needs trust (SNT), the short answer
is no. Herein we will address some questions our clients frequently ask
What is a Special Needs Trust?
The statutory special needs trust (SNT) - sometimes called a supplemental
care trust or qualified disability trust - has become the preferred method
of settling personal injury cases for plaintiffs on Medicaid. A SNT is
an irrevocable trust established for the sole benefit of a disabled person.
It is funded with the proceeds of a personal injury tort,
claim, or a workers' compensation claim. There are two requirements,
however: 1) that the person be under 65 years of age, and 2) the person
be physically or mentally disabled.
What are the Benefits of a SNT?
Typically, disabled persons are receiving local, state, and/or federal
government benefits for daily living needs and medical care, such as Medicaid,
SSI, subsidized housing, vocational rehabilitation, and others. If properly
drafted, the trust will preserve actual or potential public or private
benefits for the beneficiary because SNTs are specifically protected from
the current attribution rules that apply to trusts created with the assets
of an applicant/recipient of public benefits. Thus, the purpose of a Special
Needs Trust is to provide a source of funds, such as those that are received
in a settlement or jury verdict, without disqualifying the beneficiary
from receiving further benefits from the government. SNT funds are meant
to be used for supplemental care in addition to the care made possible
by government benefits.
In addition, the SNT funds are protected from creditors and bankruptcy.
The SNT can also provide professional management and investment of assets
without the formal court supervision required in a property guardianship.
Lastly, a SNT is tax exempt which will be later discussed herein.
What Can an SNT Pay For?
The trust may pay for and provide supplemental medical, health, nursing
care, dental care, developmental, support, maintenance, education, rehabilitation,
therapy, device, recreation, social opportunity, assistive device, advocacy,
legal, respite care, transportation, and related expenses, personal attendant
care and consultant services.
It is important to note that a SNT for an SSI beneficiary should usually
never give the beneficiary cash or a cash equivalent nor pay for shelter
or food without first consulting a special needs planner. If an SSI beneficiary
does receive cash from the trust (or a cash equivalent like a gift card),
his or her benefit will be reduced by one dollar for each dollar received,
up until he or she loses their SSI benefits entirely.
Are SNTs Exempt from Income Taxation?
In short: yes! Generally, the amount of any damages received on account
of personal injury or sickness are not included as income under the provisions
of Internal Revenue Code Section 104(a)(2). The income earned by a lump-sum
settlement, whether through interest, dividends, or capital gain, is not
exempt from income taxation. However, the imputed income earned within
a structured settlement is exempt from income taxation under Internal
Revenue Code Section 130. A structured settlement allows a settling plaintiff
and those claiming through the plaintiff to enjoy the benefit of this
income tax exclusion.
Compared to a lump-sum cash settlement, the structured settlement provides
financial security in the form of a lifetime income, and it matches benefits
with the plaintiff’s needs. In addition, it provides management
of the benefits, a guaranteed payment, and favorable income tax treatment.
The structured settlement periodic payment, however, does not eliminate
the need for a SNT. Just like a lump-sum payment, the monthly payment
to the plaintiff will be counted as an available resource to the applicant
for Medicaid and other public benefits; thus, an individual could be disqualified
from receiving public benefits. This is where a SNT comes into play –
a SNT will preserve the plaintiff’s eligibility.
What Happens When the Beneficiary Dies?
The trust terminates when the beneficiary dies. Any remaining funds will
be used to reimburse the government for the medical assistance provided
to the beneficiary after the trust was established. The trustee must work
with Medicaid to verify the amount of its "pay-back" interest
for medical assistance paid for the Beneficiary during his lifetime.
For more information, please contact Beam & Raymond to set up a
free consultation: (866) 766-3806.