Two common questions we get from attorneys are, “Does receiving settlement funds into my IOLTA account impact my client’s government benefits?” and “Can my IOLTA account fund the client’s special needs trust?”
In most states, it is perfectly acceptable to receive the settlement funds into an attorney’s IOLTA account and then send the funds for a special needs trust directly out of the IOLTA. Simply receiving settlement funds into your IOLTA account is not deemed as receipt of the funds to the client for government benefits eligibility purposes.
The reason why there’s likely confusion about the impact of receiving funds into an IOLTA account is due to the rules surrounding structured settlement annuities.
In a structured settlement annuity situation, the funds need to go directly from the defendant to the annuity company that will issue the annuity funds. For clients who wish to place all or a portion of the funds into a structured settlement annuity, if the funds hit the attorney’s IOLTA account, this is considered constructive receipt and the client loses the tax-free benefits of the annuity
However, if your client is not planning to establish a structured settlement annuity, you can safely place settlement funds in your IOLTA. Receiving settlement money into an IOLTA before sending the funds either directly to the client or to fund a special needs trust will not count against your client’s countable resources and thereby impact the client’s eligibility for their government benefits.
Please note: Receiving settlement funds in your IOLTA does not impact a client’s government benefits. However, if your client receives government benefits and wishes to maintain eligibility for those benefits, please ensure the client has a plan in place to preserve those benefits before distributing settlement funds to the client. If you have questions about how to preserve a client’s government benefit after they receive a settlement check, please give us a call.
If the client wants to place settlement funds into a structured settlement annuity, the funds should not pass through your IOLTA account (you need to make sure that those funds go directly from the defendant to the annuity company).
If the client is receiving the settlement in cash or wishes to fund a special needs trust, there is no problem if you receive the funds into your IOLTA.
If you have any questions about receiving settlement funds into your IOLTA account, please feel free to give us a call.