Personal Injury Settlements for Senior Citizens with Special Needs; Robert Fleming Explains

The damages recovered in personal injury lawsuits can be resources for persons with special needs, but the damages can cause problems for people who need public benefits. Many government programs involve means testing. Receipt of settlement benefits might cause a person to lose eligibility for a number of benefit programs. Plaintiffs who are 65 and older have problems as well. In this report attorney Robert Fleming explains what can be done to help this older group of people with special needs.

Fleming explains that special needs trusts, both standalone and pooled trusts, are tools available to help a person with special needs maintain an asset backstop and still qualify for needs-tested benefits. Standalone and pooled special needs trusts are explained in this report on the Legal Broadcast Network. Fleming says that the standalone trust—and in many states the pooled trust as well—is not an option for someone who is over age 65. “One of the best tools is taken away” from a senior who settles a personal injury claim.

Fleming says that protecting benefits for seniors can be a problem. It may be necessary to analyze a client’s situation to see what a client could possibly do without and what is essential in terms of benefit programs. Fleming notes that this is not usually a problem when working with a younger client.

Sometimes, the solution is to purchase an annuity, particularly for married beneficiaries. In some states, this is a workable solution. Sometimes, the most that can be done is to improve conditions for an older client with special needs for a shorter period than the client’s lifetime. Some of the proceeds can be used to pay for a higher level of care for the client without divesting the client of the benefits from a public benefit program.

What all of this underscores, Fleming points out, is how important it is for a person with special needs, especially one 65 or older, to work with a qualified attorney who is knowledgeable in the law the applies in cases where a personal injury settlement is involved. For example, a client who is 65 might benefit from using the settlement proceeds to provide support during rehabilitation from an injury. A person who is 75 will have a shorter life expectancy and a lower likelihood of being able to rehabilitate, so an attorney would need to keep those factors in mind in working out the best arrangement for a client.

Robert B. Fleming is a partner in and co-founder of Fleming & Curti, PLC of Tucson, Arizona. He is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona's Board of Legal Specialization, and he is also a Certified Elder Law Attorney through the National Elder Law Foundation. He is also a member of the Special Needs Alliance.

How Can Special Needs Trusts and Structured Settlements Fit Together? Andrew Hook Explains

The damages recovered in personal injury lawsuits are often distributed to injured plaintiffs using structured settlements. If the injured plaintiff is a person with special needs, some special planning may be necessary to assure that the settlement is flexible enough to meet the needs the injured person may encounter in the future. Attorney Andrew Hook explains structured settlements and how a special needs attorney can help with the planning process in this report.

Hook explains that a structured settlement is an annuity that receives special tax treatment under the Internal Revenue Code. Where the entire settlement is paid into the annuity, the payments received are tax-free. Structured settlements are tools used in personal injury settlements to help assure that the settlement proceeds are not rapidly dissipated. Studies show, Hook says, that about 80% of people who receive sudden wealth will dissipate it within five years. People with permanent injuries could find themselves with no money to pay for needed care on a long-term basis. The structured settlement also provides professional management of the proceeds.

The difficulty with a structured settlement, Hook says, is inflexibility. Once the annuity is purchased, there is a set amount that will be paid out on a set schedule. The problem for persons with special needs is that they sometimes need liquidity. Current bills in a given month may exceed the amount of the scheduled payment. This is why it is important to have a special needs lawyer sit down with the plaintiff’s lawyer and the structured settlement broker to determine how much of a particular settlement should be put into the structure and how much should be retained in cash or in readily salable investments so as to provide the liquidity that might be needed to buy a house or a car, for example.

Hook explains that a special needs trust is a means of managing the assets of a person with special needs who is reliant on public programs such as Medicaid and SSI. Those programs apply a means test to determine eligibility for benefits. A special needs trust can keep some assets available for persons with special needs and avoid disqualification for benefits under the needs tests. Hook says that the solution is to have the structured settlement benefits paid to the trust rather than to the individual. This avoids the disqualification problem.

Hook points out that the payout options for a structured settlement annuity are very flexible. “You can have a level monthly amount, you can have level monthly amounts that increase with inflation,” and a number of other options designed to provide the injured person with money when it is needed and in amounts that will be sufficient. The key point is that, once the agreement has been negotiated and executed, it can’t be changed. It is important to have a knowledgeable special needs attorney involved in the working out of the settlement.

Andrew H. Hook is the president of Hook Law Center, where he practices in the areas of elder law, estate and trust administration, estate, tax, retirement and financial planning, long-term care planning, asset protection planning, special needs planning, business succession planning, and personal injury settlement consulting. Mr. Hook is a former President of the Special Needs Alliance, a nationwide network of disability attorneys.

How to Avoid Misunderstandings When an SNT Is Part of a Personal Injury Settlement

Too often families have unrealistic expectations with regard to personal injury settlements that incorporate a special needs trust (SNT). In such cases, it’s advisable to involve a special needs attorney as early as possible so that all parties understand what is permitted by public benefits regulations.

A special needs trust (SNT) is a legal agreement through which someone places money or property into the hands of a trustee, who will hold and manage those assets for the benefit of a beneficiary with disabilities.  SNTs primarily serve two purposes. If the beneficiary is unable to effectively handle assets on their own, an SNT enables the assets to be managed on their behalf by a trustee. In addition, if the SNT is properly drafted and administered, the assets that it holds will not affect the beneficiary’s eligibility for means-tested programs such as Medicaid and SSI (Supplemental Security Income).

The trustee controls the SNT and is responsible for all investment decisions and distributions, although he/she may seek advice about the beneficiary’s needs from the individual’s family or a professional care manager. The trustee’s role requires a thorough understanding of the rules governing public benefits in order to spend trust money in a manner that protects the beneficiary’s eligibility.  This includes the requirement that funds are to be used for the sole benefit of the beneficiary, not other family members.

Since most SNTs must provide accountings to the state Medicaid agency or the court to ensure that distributions are in order, the trustee must maintain good records of all receipts and payments. Sometimes the trustee must get approval from the court or a review committee for disbursements above a certain dollar limit.  

Trustees do not give funds directly to the beneficiary, since that would be considered income by Medicaid and SSI and could affect eligibility for those programs.  And rather than making distributions to other family members, the trustee usually pays vendors directly on behalf of the beneficiary.

When families understand how an SNT must be administered in order to protect the beneficiary’s eligibility for important government benefits it can avoid both disappointment and conflict.