WHAT EVERY LAWYER NEEDS TO KNOW ABOUT SPECIAL NEEDS TRUSTS (SNTs)

There is a large population in America today of ALL ages who are beneficiaries of a Federal Welfare Program known as Supplemental Security Income or SSI for short. While SSI is available to the elderly with limited income and the blind, many who receive it meet the disability requirements of Social Security but do not have the work credits to qualify for Social Security Disability. To qualify for SSI you must also have extremely limited income and assets. For 2002 the resource limits are $2,000 for an individual and $3,000for a couple. In Pennsylvania all persons who qualify for SSI also qualify for Medicaid, also known as Medical Assistance (MA). (Medicaid is a joint State/Federal program with substantial state input and other states do not necessarily grant Medicaid benefits to all who are on SSI.)

Thus, while Medicaid is often reviewed as a senior citizen health program it is, in reality, a health program for poor citizens of all ages and, in fact, about two thirds of its funds are spent on persons under age 65. Medicaid as a health program is far more comprehensive than Medicare offering, among other things, dental coverage, eyeglasses, prescription benefits and, of course, no co-pays or deductibles. In short, while it is a very valuable benefit, since it is linked to a person's finances, with SSI, if the loose SSI, they loose Medicaid coverage.

Since these benefits are based upon very limited financial resources and limited income, a sudden infusion of funds to a person, such as a lump sum personal injury settlement or inheritance, could have dire consequences for their SSI and Medicaid benefits.

A properly drafted Special Needs Trust (SNT) is a valuable tool for allowing a disable client to benefit from this lump sum fund of money and not be disqualified for public benefits. The SNT will vary depending on where the money is coming from and should also be drafted with the individual's disability and personal needs in mind.

If the funds are coming from a proposed personal injury settlement and medical Assistance (MA) paid for health care caused by the tort, then the Department of Public Welfare (DPW) which administers the MA program will have a claim on the settlement proceeds to the extent of their health care bills. They will, upon effective negotiation, reduce their claim based upon a proportionate share of the attorney's fees in the underlying personal injury matter. The personal injury attorney cannot wait until he/she has received the settlement funds into their firm's escrow account. Their client at that point has constructive possession of the funds and is technically disqualified the moment his attorney receives the funds.

Before a settlement is finalized and Elder Law Attorney* should be consulted to draft an appropriate special needs trust. Such a document would set up a fund of money to be used for the benefit of the client under carefully defined circumstances. The trust will also supplement and never replace public benefits. It may include payments for medical, dental, and diagnostic work for which there are no public benefits, supplemental nursing care or rehabilitative services, differentials in the cost between semi-private and private rooms, expenditures for transportation, companionship to assist the beneficiary, educational and cultural expenses, recreational and occupational therapy.

In Montgomery County the Orphan's Court must approve such a trust with notice to the Department of Public Welfare. Only then should a personal injury attorney take receipt of the settlement monies. If these procedures are followed, then there will be no loss of public benefits.

Attorneys drafting Wills must ascertain if any proposed beneficiaries are in this same category and then an appropriate special needs trust should be prepared as part of the client's Will or other estate planning documents so that termination of public benefits is avoided.

There is one other category of clients that can benefit from SNTs. Some times the practitioner will be dealing with a minor child that has a disability in a tort case. Because the parent's income is ”deemed” to the child under SSI rules, the child does not presently qualify for SSI and since the child is presently covered by their parent's health insurance, medical assistance is not involved. The attorney should try to ascertain if the disability is likely to last beyond age 18 and, if so, a carefully constructed special needs trust may be appropriate so that when the child becomes an adult a large trust fund is not a barrier to public benefits.

*It should be noted that in this world of acronyms and shortened names, we are called elder law Attorneys. However, our practice includes representing disabled persons of all ages.

Published in the Fall 2002 Montgomery Bar Sidebar.