What Is a Special Needs Trust and Why You May Need One After a Personal Injury Settlement in Florida
When you or a family member receives a personal injury settlement in Florida, the monetary support can be a life-changing experience. However, if the person who was injured has a disability and relies on government benefits like Medicaid or Supplemental Security Income (SSI), receiving a big sum of money can put these benefits at risk. That is where a Special Needs Trust (SNT) enters the picture.
Here in this post, we will cover what a Special Needs Trust is, how it protects your settlement, and why you may want to have one if you or a loved one is disabled and on government support.
What Is a Special Needs Trust?
Special Needs Trust (SNT) is a legal trust that holds property for a person with a disability without cutting off their eligibility for government benefits on the basis of need. The trust is not designed to replace or augment public benefits such as Medicaid and SSI, but rather to supplement them.
Because Medicaid and SSI have income and asset limitations, an outright settlement of a personal injury may make the recipient ineligible for these essential benefits. By investing the settlement funds in an SNT, the injured party is allowed to remain eligible for government support while utilizing the trust to fund other things that improve their lifestyle.
Types of Special Needs Trusts
There are three main types of Special Needs Trusts:
- First-Party Special Needs Trust – Funded with the beneficiary’s assets, such as a personal injury settlement.
- Third-Party Special Needs Trust – Created and funded by someone other than the beneficiary, such as a parent or relative.
- Pooled Special Needs Trust – Managed by a nonprofit organization and pools assets from multiple beneficiaries but maintains individual accounts.
Each trust serves a different use, but with personal injury settlements, a First-Party Special Needs Trust tends to be the best option.
Why You Might Need a Special Needs Trust If You’ve Settled Your Personal Injury Claim
An award for personal injury is intended to provide financial security, but it has a tendency to create legal and financial issues if not properly handled. The following are the most significant reasons why the establishment of a Special Needs Trust might be essential:
- Preserving Medicaid and SSI Eligibility
Medicaid and SSI are means-tested benefits, which requires them to have significant income and asset limits. For example:
- SSI recipients cannot possess more than $2,000 in assets ($3,000 for a couple).
- Medicaid eligibility also hinges on the ability to pay, with assets capped by state.
If a settlement of a personal injury is directly given to an individual who is disabled, it can place them above such limits and lead to loss of benefits. Placing the money in a Special Needs Trust prevents the settlement from being considered a personal asset, allowing the individual to keep benefits.
- Long-Term Financial Security
A Special Needs Trust helps to manage settlement funds so that they will last in the long term. Rather than receiving a lump sum payment, the beneficiary will have access to money as needed for authorized expenses, having funds for years to come.
- Paying for Quality-of-Life Expenses
Government benefits only cover essential living and medical costs. A Special Needs Trust can be used to pay for other expenses such as:
- Non-Medicaid-covered medical procedures
- Rehabilitation and therapy services
- Personal attendants
- Specialized equipment and assistive technology
- Educational expenses
- Travel and recreational activities
- Home accessibility modifications
These extra funds significantly enhance the quality of life of the beneficiary without jeopardizing their eligibility for essential benefits.
- Protecting the Settlement from Mismanagement or Exploitation
A Special Needs Trust has a trustee, who manages the funds and ensures they are appropriately spent. This prevents any potential monetary abuse or mismanagement, particularly if the injured individual suffers from mental impairments or is vulnerable to financial abuse.
- Medicaid Payback Avoidance (For First-Party Trusts)
A First-Party Special Needs Trust (one that is funded with the victim’s own money) is subject to Medicaid payback. This ensures that upon the passing of the beneficiary, any remaining money in the trust must be spent to reimburse Medicaid for monies paid out on behalf of the individual.
While this is something to consider, it is a preferable option to being disqualified from Medicaid completely.
How to Set Up a Special Needs Trust in Florida
If you believe a Special Needs Trust is the most advantageous choice after a personal injury settlement, it’s important to set it up correctly. Here’s how:
- Get an Experienced Special Needs Trust Attorney
Setting up an SNT has complex legal and financial consequences. A Florida attorney with expertise in Special Needs Trusts and personal injury settlements can help you:
- Select the correct type of trust for your situation
- Draft the trust agreement
- Meet Florida laws and federal benefit regulations
- Select a Trustee
The trustee will manage and distribute the trust’s assets. You can choose:
- A trusted family member
- A professional trustee (such as a bank or trust company)
- A non-profit organization (for a pooled trust)
It is advisable to choose someone who understands the financial and legal responsibilities of managing an SNT.
- Deposit the Trust with Your Settlement
Once the trust is established, the settlement funds need to be directly deposited into the trust. If taken personally first, they could be viewed as an asset, which would render a person ineligible for benefits.
- Administer Correctly
The trustee has some rules to follow in order to maintain the trust exemption. These are:
- Disbursing only for approved expenses
- Maintaining complete records of trust transactions
- Avoiding direct cash payments to the beneficiary, which might impact benefits
Mistakes to Avoid
While handling a personal injury settlement for a beneficiary on government benefits, there are certain blunders that can have catastrophic consequences. Some of the usual mistakes that should be avoided are as follows:
- Not Establishing a Special Needs Trust – If an SNT is not set up, the beneficiary might forfeit Medicaid or SSI.
- Receiving Settlement Funds Directly – Once deposited in the beneficiary’s personal account, the funds can be regarded as an asset.
- Spending Funds on Unauthorized Purposes – Misappropriation of trust funds could lead to disqualification from benefits.
- Picking the Incorrect Trustee – A reckless or inexperienced trustee could spend the funds and lower future security.
Final Thoughts
Your settlement should be something that brings peace of mind and long-term aid, but when you or someone you love depends on Medicaid or SSI benefits, it is important to avoid jeopardizing them. A Special Needs Trust is a smart legal maneuver that keeps settlement money free to enhance life quality without compromising government benefits.
For counsel tailored to your situation, call Jaime “Mr. 786Abogado” Suarez today to Get You Paid!
