For some Workers’ Compensation settlements, a Special Needs trust may be needed

A Special Needs Trust is a type of first-party trust that is often used to preserve a lump sum benefit for a low income disabled person under age 65, who needs the support of Medicaid and Supplemental Security income (SSI). Often one thinks of the these trusts in connection with someone who is on SSI because they are disabled and have not worked, such as a person with developmental disabilities or psychiatric disabilities which have prevented them from being fully engaged in the workforce over time. However, some workers who did pay into the Social Security system become disabled as a result of a workplace injury, but because they were very low earners or didn’t work very long, the amount of their Social Security Disability benefit is smaller than the SSI amount and they will therefore require the additional support from SSI. Medicaid eligibility for health insurance comes along with the SSI. The lump sum settlement which they receive upon resolution of the Workers Compensation claim would constitute “excess resources” which would make them ineligible for the SSI and Medicaid. Also, the monthly payment would be treated as Unearned Income which would reduce the SSI payment dollar-for-dollar. Note that the issue I am writing about is distinct from the issue concerning Social Security Disability offsets, in which up to 80% of an SSD payment can be offset by the concurrent receipt of Workers’ Compensation benefits. See EN-05-10018

This is where a Special Needs Trust (SNT) comes in. An SNT needs to be created by a parent, grandparent or court. See 42 USC 1396p(d)4(A), N.J.A.C. 10:71-4.11(g)1. If there’s no parent or grandparent to create the trust, the Court can create it at the request of the disabled person per N.J.S.A. 3B:11-36 and -37. A motion then needs to be made to the Comp judge to direct that the payment be made into the SNT. These steps should be taken before the payment is made by the carrier. The Trust is then established and handled by the Trustee, and the funds are utilized to supplement but not supplant the means-tested benefits.

It is more common for a Special Needs trust to be established to receive a personal injury (PI) settlement or an inheritance than in the workers compensation context. This is probably because most permanently disabled workers already paid enough into the Social Security system to be insured under the Social Security Disability system (SSD), which is not a means-tested program and has no asset or income limits.

The main point is that timing is critical, as it can take several months for this process to be accomplished. Just figuring out who should be the Trustee is often a bedeviling problem. So if it looks like your case will result in income below the SSI limit, so that the worker will end up receiving SSI and SSD, as well as Medicaid, the concept of a Special Needs trust should be explored early on.

For representation and co-counsel involving establishment of special needs trusts, call 732-382-6070


We prepare Special Needs Trusts and collaborate with other attorneys to prepare and establish the trusts when their cases are settled. For advice, call … 732-382-6070

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  1. Yes you can and should claim your son on your taxes for this tax finilg. If youhave been supporting him and he has been living with you than you can do so for 2006 as long as he lived with you most of the year. If it is just the two of you and you are the main support for the home, make sure you ask your tax preparer about the Head of Household finilg status!

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