Oh No, I’m Getting Money; Now What Do I Do?

HNWElder Law, Special Needs Trusts for Minor Children and Adults

special needs trustI get quite a few calls from attorneys who have settled cases or obtained judgments in favor of their clients to compensate them for pain and suffering resulting from slip and falls, car accidents, medical malpractice etc. The amount recovered might be small, say $10,000.00. In other cases, it can be substantial, say $1,000,000.00 or more. In each case the attorneys have brought the matter to a successful conclusion, no doubt getting the very best result they can for their client. So, why are they reaching out to me?

The reason is that in many cases their clients are receiving “needs based” government benefits; an example, Medicaid.  Receipt of settlement money will in each case cause their client to lose those benefits. Often the attorney has no idea this could be an issue when he/she took the case. Now the client is understandably concerned about losing the benefit which just might have a major impact on his/her well-being.

What if anything can be done? Placing the proceeds in a special needs trust may be the solution but that won’t work for everyone and even if it is, it still may not be desirable or necessary.

A Special Needs Trust, or more specifically, one type of a Special Needs Trust is a possible solution. A first party Special Needs Trust, also known by reference to the specific federal statute that authorizes it, a “(d) (4) (a) Special Needs Trust, is funded with the beneficiary’s own assets. This is to be distinguished from a third party Special Needs Trust which is funded not with the beneficiary’s own assets but rather a third party’s assets. This is commonly the case with parents who set up a Special Needs Trust to receive the inheritance they intend to leave for a disabled child as part of their estate plan.

There are some important requirements that must be satisfied in order to set up a first party Special Needs Trust. First is that the beneficiary must qualify as a disabled individual. A decision by Social Security and receipt of Social Security disability benefits is the easiest way to establish this requirement. A second requirement is that the beneficiary must be under the age of 65 when the trust is set up and funded.

This age limitation is a common impediment to being able to set up an Special Needs Trust. Let me give you an example. Attorney settles a negligence claim on behalf of a client who is currently in a nursing home on Medicaid. The client is 70 years old so an Special Needs Trust is not an option. Receiving the money will cause the client to exceed Medicaid’s asset limit of $2000.00. The client can give the money to the State of New Jersey and remain on Medicaid or keep the money but lose Medicaid. Neither option is appealing. It leads to thoughts by the client of “why did I pursue the claim?” and “what benefit am I getting from this?”

So, is that it? Are there no other options? Well maybe yes, maybe no.

If the person has a child that has been found disabled by Social Security, then an outright transfer to that child or to a trust for the sole benefit of that child can be made. This transfer to the child or to a trust for the sole benefit of that child can be made. This transfer will not carry a Medicaid penalty because it falls within the exception to Medicaid’s transfer penalty rules. From there the money can be placed in a trust and used for Joe’s benefit.

What if Joe doesn’t have a disabled child? Then he will need to spend the money down but cannot simply transfer it out of his name. He must spend it on product or services for himself (not others). There isn’t much he can spend it on in a nursing home but depending on his mental and physical capabilities a cell phone, computer or motorized wheelchair are some common expenses.

In order to keep his Medicaid benefits uninterrupted, he must spend the money before the next calendar month so as to keep his assets under $2000.00. If the funds he receives are too much to spend in one month then he needs to private pay the cost of his nursing home care until he can get his bank account back under $2000.00 and then reapply for Medicaid.

Knowing all this before pursuing a claim can be critical importance. Let’s say that Joe (a fictitious name) is 63 when his personal injury attorney takes the case. If he knows that he will no longer have the disability to place his money recovery in a Special Needs Trust once he reaches age 65, he cannot utilize the disability child exception; it just might be better for his attorney to push extra hard to resolve the case before his 65th birthday, even if it means taking less money. After all, if he has to give some or all of it to a nursing home or the State of New Jersey he won’t benefit at all from the extra money.

To discuss your NJ Elder Law, Special Needs Trust, Medicaid matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Medicaid Elder Law Attorney


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