For those who receive Medicaid, Supplemental Security Income, and other needs-based government programs, receiving a personal injury settlement could mean losing benefits. But with proper settlement planning, plaintiffs can keep their eligibility for benefits while still making the most out of settlement.
A special needs trust (SNT) ensures funds from a personal injury settlement go to expenses that government programs do not cover. These “non-countable” expenses include (but are not limited to):
- A home
- Home furnishings and personal belongings
- A vehicle
- Occupational goals, such as the pursuit of a college degree or vocational training
- Essentials for self-support
- Life insurance policies
- Burial expenses
With an SNT, benefits programs can work in harmony with the settlement, because they are covering different things.
Special needs trust costs
Several costs come with establishing an SNT, and they can range by the thousands. Many people assume that going to their local bank or a big national institution is the safest approach, but it tends to be more expensive than other options. Here is an example of how those trusts are most often administered:
- Trustee = 1%
- Investment adviser 1%
- Expense ratios in funds = 1%
When we’re talking about a million dollars, those costs equate to $30,000 each year. But a properly designed special needs trust should cost no more than 1.25% per year, which is almost a third as much as the norm.
A professional cost-to-benefit analysis
If you’re considering a special needs trust, it is important to speak with a comprehensive settlement planner to get a cost-to-benefit analysis. A settlement planning expert will take a holistic look at your (or your family member’s) entire financial situation, including the variety benefits available to you, such as:
- Supplemental Security Income (SSI): Assistance to people who are 65 or over, blind, and/or disabled.
- Medicaid: Basic medical and hospital services for adults and children with disabilities. Some beneficiaries are also eligible for a Long-Term Care Medicaid Waiver, which provides coverage for long-term in-home care or assisted living services.
- Section 8, Housing Assistance, and Group Homes: Section 8 and other housing assistance programs provide financial help with renting an apartment for individuals below a certain income threshold. In some states, individuals may be eligible to live in a group home.
- SNAP: Financial aid to purchase food as well as seeds and plants to grow food, Meals on Wheels, and more.
- Veterans A&A: Aid for qualifying veterans and spouses of deceased veterans.
- CHIP: Health coverage to eligible children.
One important consideration is whether the value of these government benefits exceeds the amount that an SNT would cost over a lifetime.
In addition, you or your family member may also be eligible for programs that are not based on income, such as Medicare, special education, and Social Security Disability Insurance (SSDI). By understanding which ones you qualify for, a professional planner can determine how the settlement can best work alongside those available benefits.
Some alternatives to a first-person special needs trust include:
- Spend down plan, which refers to a process of spending excess income on medical bills to avoiding incurring excess income that disqualifies a person from means-tested programs.
- Settlement protection trust, which would be helpful to those who are under age 18 or incapacitated. While it would impact eligibility for needs-based government programs, this kind of trust offers expert assistance with money management.
- Pooled trust, which is sponsored by a state- or nationally-based charitable organization and is administered by the charity and most likely an administrative trustee. The assets are “pooled,” and are helpful for smaller settlements.
- ABLE account, which gives beneficiaries and their families control over their funds. The cost of establishing an ABLE account will likely be less than that of a special needs trust or pooled income trust.
Deciding between a pooled trust or an individual special needs trust is a challenge, and the choice is a long-term business arrangement that should be decided in full transparency with an advisor you trust.
In the webinar above, Sam Dolce, Esq. explains a spend down in more detail.
After reviewing the entire picture of a beneficiary’s financial life, an expert settlement planner can help determine if a special needs trust is the most helpful option, and if not, which tools would be the best for ensuring the settlement is as helpful to the client for as long as possible.