Settling Cases for Clients Receiving Medicaid or Other Needs-based Benefits

Plaintiff attorneys need to be aware that by disbursing settlement funds to their clients they could be jeopardizing their client’s current and future needs-based public benefits, and putting themselves at risk for malpractice claims.  Many injury victims arrive at the settlement of their personal injury case financially destitute.  They have often lost their primary source of income and are faced with enormous medical expenses to care for the injuries they have suffered.  As a result, many injured clients rely on government assistance in the form of Medicaid to cover their medical expenses and Social Security Income (SSI) to pay for basic living necessities.

Medicaid and SSI, as well as other public benefits, are considered “needs-based” – meaning eligibility for these benefits is based on the recipient’s financial need.  Each State has specific eligibility requirements, but as a general rule an individual cannot have more than $2,000 in liquid “countable assets” (in most States a primary residence and an automobile up to certain values are not considered “countable”) and are limited in the income they can earn each month to remain eligible for Medicaid or SSI.  Thus, almost all personal injury settlements, if disbursed to the client, would render the client ineligible for these types of needs-based government benefits.  Of course, the client could become eligible at some point again in the future once they had spent down the settlement recovery, but such a course is ill-advised, as it does little to benefit the client and creates potential malpractice liability for the plaintiff attorney.

Special Needs Trusts

Special Needs Trusts (SNT), codified under 42 U.S.C. § 1396p(d)(4)(A) and (C), can be established to allow an individual to qualify for needs-based public benefits or to maintain needs-based public benefits.  The net settlement recovery that otherwise would disqualify the injury victim for needs-based public benefits can instead be paid into an SNT, which is not considered an asset of the injured client.  The SNT is then used to pay for “supplemental” needs.  In general, disbursements cannot be made for food and shelter, but can be made for a wide range of goods and services that enhance the injury victim’s quality of life and provide for their supplemental needs that are not covered by Medicaid.

The trustee of the SNT must be someone other than the trust beneficiary.  The funds must be used for the exclusive benefit of the trust beneficiary, and each State has very specific rules regarding the types of disbursements that can be made.  There are two main types of SNTs that are generally used by settling injury victims, and each has unique requirements and characteristics.  The first is typically referred to as a “Self Settled” or (d)(4)(A) trust.  The second is referred to as a “Pooled Trust” or (d)(4)(C) trust.  A self-settled trust requires that the client be under the age of 65, and must contain a payback provision upon the death of the beneficiary for benefits paid by Medicaid.  A pooled trust can be established for clients of any age and does not contain a mandatory payback provision, but must be established and managed by a nonprofit institution.  Special Needs Trust planning is becoming increasingly complex, and deciding which type of SNT is best for each client is a decision best left to a qualified special needs or elder law attorney.

Special Needs Trusts are an extremely valuable planning tool and can greatly increase the quality of life for many injury victims.  While an SNT may not be needed or may not be suitable in all situations, it is essential in many.  Plaintiff attorneys need to make sure that before settlement funds are disbursed to their clients they have thoroughly reviewed the client’s unique situation to make sure an SNT is not needed.  If an SNT is needed, they must make sure an SNT is drafted and in place to receive the client’s net settlement funds.  Failing to do so could cost the client valuable time and resources and expose the plaintiff attorney to unnecessary liability.

Please contact us if you are settling a case with a client that is currently receiving Medicaid or SSI or may need Medicaid or SSI assistance in the future.  We are attorneys that specialize in these areas and can help your client understand their options as they settle their personal injury claim.

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