Legal Settlements and Special Needs Trusts

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Individuals who become disabled as a result of an accident may receive a monetary award as part of a legal settlement of the case. If this happens, it is important that the individual, prior to finalizing the settlement, speak with a special needs attorney to determine the best way for the settlement to be paid.

The two most common types of pay-outs are the structured settlement and the lump-sum payment. The structured settlement often consists of an income stream (in the form of an annuity) as well as lump-sum payments that may be made at certain times, such as certain birthdates. The payments are usually based on the beneficiary’s life expectancy.

Whether an individual elects a structured settlement or a lump sum, these assets are considered assets of the individual. If, as a result of the disability, the individual would qualify to receive government benefits such as Medicaid but for the monetary award, the individual should consider having the award distributed to a trust for his or her benefit. An individual cannot have assets in excess of $2,000 in his or her name in order to qualify for Medicaid and SSI. If the award is paid to the individual, this eligibility test is not met. If instead, these payments are made to a First Party Special Needs Trust, the individual’s eligibility for governmental benefits is preserved. At the individual’s death, the remaining trust assets will be used to reimburse Medicaid for any money it has expended. Any money left in the trust can pass to successor beneficiaries named in the trust.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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