Frequently Asked Questions about Individual & Pooled Special Needs Trusts
with Structured Settlements


What is a Special Needs Trust?

Many of your clients may have sustained an injury that has made them uninsurable therefore potentially eligible for Medicaid. These individuals with physical, developmental and psychiatric disabilities rely on essential government programs such as Medicaid and Supplemental Security Income to provide medical coverage, purchase food, shelter and other essentials. Funds from there settlement can then provide for their supplemental needs.

A Special Needs Trust allows these benefits recipients to hold money in trust for all the things government programs don't pay for without jeopardizing their benefits, such as: entertainment, travel, some medical products and services, some therapies, and the little necessities and pleasures that make a big difference in the beneficiaries' quality of life.


What is a Structured Settlement?

A Structured Settlement is a method of settling a personal injury or workers compensation claim utilizing a stream of periodic payments rather than a traditional lump sum cash payment. The stream of payments are paid to the injured party through a settlement annuity or other funding vehicle purchased by the responsible party to fund its obligations under the settlement agreement


Why is it so beneficial to combine these two things when I am settling my client's claims?

Combining these two settlement vehicles will allow you and your client to 'plan-out' their future needs with a payment stream that creates the right tax-free investment as well as spendthrift protection while allowing them to maintain eligibility for Medicaid or SSI.


How does the government view a structured settlement feeding into a Special Needs Trust?

The federal government has provided the Individual and Pooled Special Needs Trusts to protect benefit eligibility for the disabled. Structured settlements with a commutation writer provide a vehicle that allows an individual to continue to receive funds tax-free while still protecting the state lien that accrues while they utilize a Special Needs Trust. This preserves funds to last the injured party a longer time benefiting the claimant and protecting any future liens. Upon death, the structured settlement payments are commuted and after any government liens are taken care of, the remaining funds will go to the client's beneficiary.


Who do I work with to get this arrangement set up?

Contact an Elder Law or Trust attorney that specializes in the use of a Structured Settlement along with a Special Needs Trust.


I thought they were not allowed to have any assets.

While many essential government benefits programs have asset limits; some as low as $2,000, the resources in an Individual or Pooled Special Needs Trust do not count towards their benefit eligibility.


Who manages the assets?

This varies from program to program. Most Individual Special Needs Trusts are administered by corporate trustees. Pooled Special Needs Trust programs are established and managed by a Non Profit by Federal Law but should have a corporate trustee to provide fiduciary oversight of the investment platform. It is also preferable to utilize a program with a third party administrator that works with state specific attorneys to provide ongoing protection of government benefit eligibility. With a third party administrator the eligibility for the payment of a request is provided by the administrator not the trustee.


How does my client spend their money?

The assets in an Individual Special Needs Trust are usually held in a trust account with oversight provided by a corporate trustee. Pooled Special Needs Trusts are groups of individuals whose investments are collectively invested by Asset Allocation Model, but each individual has their own account and investment statement. The advantage is all the funds in a particular model are collectively managed so that it decreases the overall investment management costs to each individual in the group. In many cases this allows for a greater rate of return. When a beneficiary wants to request funds from their trust account they fax a disbursement request to the program administrator or trustee. Individual and Pooled Special Needs Trusts have limitations on what can be paid from the trust. The rules vary significantly from state to state. The primary rules are that all disbursements must be for the sole benefit of the trust beneficiary, no funds can be paid directly to the beneficiary. In addition shelter related expenses such as gas, electric, water, sewer, heating fuel, garbage removal, real estate taxes or mortgages are generally not allowed. The rules also vary based on government benefit eligibility. The rules for those individuals who qualify for Supplemental Security Income are more restrictive than those who only qualify for Medicaid. This ensures that they do not receive income that would cause them to lose their benefits. When money is paid directly to a service provider and/or merchant, it is not considered cash income to the client.


What if they need to pay at the time of service?

Sometimes, they will need to pay someone who does not send a bill. For example, when you buy clothing, the retail store will not send a bill. Many participants in a Special Needs Trust use their public benefits money (SSI, SSDI, etc.) to pay for these expenses but sometimes it's just not enough. The trust can reimburse a friend or family for making allowable purchases on behalf of the beneficiary. In addition if a program uses a third party administrator they will assist you in how to make arrangements for any type of allowable purchase.


How do I help my client join a Special Needs Trust?

Once it's determined that you will need to advise your client that they will want to place their funds into a Special Needs Trust, you complete an agreement that allows them to join the Trust as a participant. Funds will be paid directly to the Trust, ensuring that your client does not lose their benefits for even one day.


Does the settlement check that will fund the SNT have to come directly from Defense, or can it come from my trust account?

Unlike a Structured Settlement, where you have to consider constructive receipt, you may write the initial check to the trust account from your clients trust account that you have set up. But remember, the Structured Settlement Portion of the settlement DOES have to have a direct check from the defense to avoid constructive receipt.


Can they leave an inheritance for family or friends?

The primary purpose of a Special Needs Trust is to increase the beneficiaries' quality of life. If they do not use the funds that have been set aside in the Special Needs Trust during their life, they can name remainder beneficiaries to receive them. However, some state agencies, such as the Department of Health Services, may first be entitled to reimbursement for the wholesale cost to provide services during the beneficiary's lifetime. Some Pooled Special Needs Trust programs retain the remainder. When selecting a program ask about their termination policy. Alternatively, you can leave whatever money is left to the charities that formed the Special Needs Trust. Your client at the time of enrollment will make the decision as to the charity that they would like their funds to go to on a yearly basis.


Are there age limits to joining a Special Needs Trust?

An Individual must be under age sixty-five to utilize a Individual Special Needs Trust. There are no age restrictions on participants who join a Pooled Special Needs Trust.


Is there a minimum or maximum size of account?

Most Individual and Pooled Special Needs Trust programs have minimums. We do work with Pooled Special Needs Trust program providers that do not have a minimum or maximum amount that you must place into the Trust. There is a $250K to $500K minimum by most Individual Special Needs Trust providers including high annual minimum fees to join most individual Special Needs Trusts.


I receive SSI, SSDI, Regional Center Services, Section 8 Housing, Medicare and/or Medicaid, will a Special Needs Trust work for my client?

An Individual or Pooled Special Needs trust, only protect eligibility for Medicaid and Supplemental Security Income (SSI). Some states will continue not to count assets in an Individual or Pooled Special Needs Trust for other state programs but this is area and/or state specific. Consult a Elder Law or Trust Attorney in your state.


Can my client for any reason dissolve or break the trust and remove all assets? What if he/she is no longer disabled nor in need of government benefits?

Individual and Pooled Special Needs trust are irrevocable. Should you not need the trust in the future, you would have to have an attorney petition the court to have it dissolved.


Are the assets placed in the trust protected in the event of a lawsuit against my client?

No, Individual and Pooled Special Needs Trusts do not provide protection from existing third party liens, taxes or litigation activities. They allow assets to be exempt in relation to government benefit eligibility only.


How do I find an Elder Law or Trust attorney that understands both a structured settlement and a Special Needs Trust?

Go to www.naela.com


What do I do if, after reviewing all this information, I still have questions? Who do I contact?

Call Knights Administration, which is a third party administrator for Individual and Pooled Special Needs Trust Programs for Non Profits Nationwide, at 1-877-MYKNIGHT/695-6444.