Personal Injury Settlements and Special Needs Trusts

By November 23, 2010Uncategorized

Imagine a scenario where a disabled person who relies on SSI to cover his medical care is awarded a settlement after being involved in an automobile accident.  The settlement is intended to compensate the individual as fully as possible for his injuries.  Unlike most people, however, an SSI recipient cannot accept such a settlement without fear of negative repercussions.  Because SSI is a needs based program, only those with limited income and assets qualify for the benefit.  As such, receiving a settlement could very well disqualify a SSI recipient from the program.

It hardly seems fair that receiving compensation for an injury would cause somebody to lose a benefit that supports him from day to day.  Most personal injury settlements are nowhere near large enough to provide a disabled person with support for the remainder of his life, so the settlement itself could create complications unless alternative plans are made.  To receive a settlement and also remain eligible for his benefit, an SSI recipient may need to create what is called a special needs trust.

Money set aside in a special needs trust is not counted for purposes of SSI eligibility.  This means that if the proceeds of a settlement are placed in such a trust, the SSI recipient may remain eligible for his benefit, so long as the special needs trust funds are used only for suitable purposes.  Special needs trust funds can be used to supplement the disabled person’s care and to purchase items such as clothing, entertainment and home improvements.  Trust beneficiaries are prohibited, however, from receiving cash payments from the trust.  Establishing this type of trust is oftentimes the only way a SSI recipient may receive a personal injury settlement without jeopardizing his benefit.

One would expect that an SSI recipient’s attorney would advise him of all of this when a settlement is offered, but there are certainly instances where this advisement never takes place.  And, where an SSI recipient takes a settlement without making the proper arrangements, the results could be quite problematic.  Any time an SSI recipient receives a large sum of money, whether it be from a settlement or elsewhere, he should speak with a special needs trust attorney about how he may remain eligible for his benefit.