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Special Needs Trusts in Personal Injury Settlements

By Dennis C. McAndrews, Esquire

On December 14, 1999, the Foster Care Independence Act of 1999 was signed into law. This Act included a provision that provides for the use of Special Needs Trusts (SNTs) on behalf of disabled individuals who receive Supplemental Security Income (SSI) from the Social Security Administration. This provision was designed to clarify the use of Special Needs Trusts for SSI recipients, and to coordinate the provisions of the Social Security Act relating to SNTs under the Medical Assistance and SSI programs.

As noted in other articles, the use of Special Needs Trusts for disabled individuals who receive personal injury awards is an indispensable tool in protecting Medical Assistance (MA) and SSI benefits. Medial Assistance benefits alone can provide services worth tens of thousands of dollars— or even hundreds of thousands of dollars— every year. SSI also provides valuable cash benefits every month to allow the disabled individual to independently purchase food, shelter, and clothing.

In 1993, Congress amended the Social Security Act to explicitly provide for those circumstances under which an SNT could be created for a disabled individual who receives MA. However, the enabling legislation— the Omnibus Reconciliation Act of 1993 (OBRA-93)— did not explicitly address SNTs for recipients of SSI benefits.

Fortunately, in the years since 1993, the Pennsylvania Department of Public Welfare and the Social Security Administration have generally been cooperative with personal injury attorneys and their estate planning consultants in the development of SNTs which preserve both MA and SSI benefits. However, in other states, the atmosphere has been less accepting, and sometimes hostile, to the use of SNTs in personal injury settlements.

Under the new rules enacted in December 1999, the Social Security Administration continues to provide benefits to disabled individuals who are the beneficiaries of SNTs, so long as the SNT is properly drafted under OBRA-93 and the Foster Care Independence Act of 1999.

In most cases, the Special Needs Trust must include the following elements: the Trust must (1) be irrevocable, (2) exist for the sole benefit of the disabled person, (3) provide for a payback to MA upon the death of the disabled person, but only to the extent that funds then exist in the Trust, (4) be created by a parent, grandparent, guardian, or court, (5)identify specific contingent beneficiaries who would take upon the death of the beneficiary, (6) be fully discretionary and have as the Trust’s purpose to supplement, rather than supplant, the beneficiary’s special needs, (7) be designed to provide the special needs of the disabled individual.

Although some practitioners believe that Special Needs Trusts are extremely limited in the services which can be provided to the disabled person, this is hardly the case. Virtually anything other than ordinary food, clothing, and shelter may be purchased by the Trust. Moreover, if the Trust maintains title to a premise, in most cases housing can be owned by the Trust and provided to the disabled person. Examples of the goods and services which may be purchased for the disabled individual can include (and are not limited to) transportation (including the purchase of a modified vehicle), entertainment, travel, vacations, therapies, educational opportunities, paid caregivers, respite services, medical and dental care, nursing care, nutrition, socialization services, furniture, legal services, and modification to dwellings to permit accessibility.

Except in extremely small injury settlements, there is virtually no reason to fail to consider the use of a Special Needs Trust to protect valuable government entitlements of disabled persons.

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