Individuals with special needs often receive government benefits to assist them with medical and living expenses. However, these crucial benefits are typically needs-based. As a result, a sudden influx of income – such as a personal injury settlement or award – can cause benefits recipients to lose their eligibility for those benefits. Fortunately, parents can take steps to safeguard these funds for their children’s futures without endangering their eligibility for public benefits, such as establishing a self-settled or first-party special needs trust.
Absent a self-settled special needs trust, receipt of even a relatively small personal injury settlement or award would increase an individual’s countable assets or resources to more than $2,000. With resources of more than $2,000, the individual with special needs would become ineligible for Supplemental Security Income (SSI) benefits. Likewise, any substantial personal injury award would likely eliminate the individual’s eligibility for Medicaid benefits. Loss of these benefits can devastate the individual’s ability to provide for their needs, as the costs of care will quickly diminish any settlement proceeds. Establishing a self-settled special needs trust avoids this problem.
A self-settled special needs trust can safeguard personal injury settlement or awards while preserving public benefits eligibility for a person with special needs. The balance of a special needs trust does not count toward the resource or asset limit for public benefits.
Either the person with special needs (if they have the legal capacity to do so) or their parent, grandparent, or guardian can establish this type of special needs trust. Furthermore, the individual with special needs must be the beneficiary of a self-settled special needs trust.
Self-settled trusts differ from third-party trusts, although both preserve public benefits eligibility. These trusts are subject to some strict requirements. Unlike third-party trusts, self-settled trusts must contain a special provision concerning Medicaid repayment. The provision must direct the trustee to repay any trust funds remaining after the beneficiary’s death to the state Medicaid program.
Furthermore, permissive distributions from self-settled special needs trusts can be more restrictive than those from third-party special needs trusts. For example, the terms of a self-settled trust can limit the types of payments that the trustee can make for the trust’s beneficiary. A self-settled trust also typically requires an annual accounting report to the state Medicaid agency. Finally, adults with special needs who are over the age of 65 are ineligible to form self-settled special needs trusts.
Although the self-settled special needs trusts have various limitations, they have significant advantages for individuals with special needs who are receiving personal injury settlements or awards. Self-settled special needs trusts allow individuals with special needs to keep and use their personal injury claim proceeds for future support while not losing necessary public assistance.
Personal Injury Settlement? Contact Us Today for Help
Rubin Law is the only Illinois law firm to dedicate itself exclusively to providing compassionate legal services for children and adults with special needs. We offer unique legal and future planning techniques to meet your family’s individual needs.
Call us today at 866-TO-RUBIN or email us at email@rubinlaw.com to learn more about the services we can offer you and your family.
