If a person is disabled and cannot support themselves, they may need the support of government benefits over the long term to help with costs of housing, health insurance, transportation, residential services, and home health aides. If they then receive assets through a personal injury settlement, the impact of the settlement on their eligibility for benefits must be taken into account. That lump sum or structured payment stream may seem large, but can pale in comparison with the overwhelming lifetime needs of the disabled individual. The remedy is to petition the court to create a Special Needs Trust (“SNT” or “d4a”) to receive the proceeds of the settlement. This can preserve eligibility for Medicaid, SSI, DDD services, Section 8 housing, and more. However, Special Needs Trusts must meet many specific requirements and must be spent for sole benefit of the disabled individual. https://secure.ssa.gov/poms.nsf/lnx/0501120203
There are complicated rules concerning what it means to spend the trust assets for sole benefit of the trust beneficiary. https://secure.ssa.gov/poms.nsf/lnx/0501120201#f2
If trust assets are spent on another person to pay for that person’s legal obligations (mortgage, taxes, utilities, car payments), to pay for their travel, or to buy something that is then owned by the other person (computer, furniture), there are several risks to the disabled beneficiary: the payment could be treated as a transfer of assets; the payment could be counted as income to the beneficiary; and the whole value of the trust (the trust corpus) could become a non-exempt asset and be counted as an available resource. The Social Security Administration tightened up these “sole benefit” rules in May 2012, but there may be older trusts out there which have language that on its face would seem to authorize certain disbursements that today will cause big problems. For instance, although it is arguably “for benefit of” the disabled individual if the trust maintains the family home or pays for expenses that enable the whole family to stay together, these expenditures can violate the “sole benefit” requirements. Caution is advised — make sure to get updated advice on permissible ways to structure these arrangements.
For legal advice on creating and administering Special Needs Trusts and applying for Medicaid benefits, call 732-382-6070