Special Needs Trusts

A Special Needs Trust or a Supplemental Needs Trust (SNT) improves a disabled person’s quality of life without endangering eligibility for government programs. The primary purpose of an SNT is to preserve Medicaid benefits which provide for needs other than food, clothing and shelter. An SNT allows a personal injury victim to receive a personal injury settlement/award without disqualification from SSI or Medicaid. Federal law allows money to be placed into an SNT, and that money is not a countable resource for purposes of qualifying for needs-based public assistance programs (See 42 U.S.C. 1396p).  In order to create a Special Needs Trust, the personal injury victim must meet the definition of disability contained in the Social Security Disability definition (See 42 U.S.C. 1382c).
 

Types of Special Needs Trusts

Disabled person under age 65 (42 U.S.C. 1396p (d)(4)(A)): This trust is established with funds of the disabled person (typically a personal injury settlement/jury verdict) for the benefit of a disabled person who is under age 65 at the time of drafting the SNT. After the death of the beneficiary, then the law requires that any remaining funds are first used to repay any Medicaid lien due for benefits paid during the life time of the beneficiary.  If there are any funds remaining, then they can be distributed to the heirs of the beneficiary according to the terms of the Trust.

Pooled Trust (42 U.S.C 1396p (d) (4) (C)): This trust is available to people under age 65 or over the age of 65 (over 65 can only participate in a pooled trust) at the time of drafting the SNT. This trust is an excellent vehicle for smaller settlements and it is available to the disabled. After the death of the beneficiary, any assets remaining in the Pooled Trust must remain in the Pooled Trust for the benefit of other disabled beneficiaries or must be paid to Medicaid.

Qualified Income Trust (42 U.S.C. 1396p (d)(4)(B): This trust is sometimes called a Miller Trust. It enables individuals to qualify for nursing home Medicaid even though the individual’s income exceeds the applicable income cap. One of the key benefits is that there is no Medicaid payback provision.

Third Party Special Needs Trust: This trust is established by someone else (parent, grandparent or the court) for the benefit of a disabled person in order to provide comfort and happiness during their lifetime. When establishing the trust, the Grantor makes a decision as to where any remaining funds go once that disabled person passes away.

If you do not have enough money to pay for all of your future medical care and support from your settlement and you are currently eligible for SSI/Medicaid, then you should consider establishing an SNT. Depending on state laws, the SNT can also be used to pay for life-enhancing needs, such as:

  • Specialized rehabilitation services or educational services 
  • Personal care attendant 
  • Out-of-pocket medical expenses 
  • Transportation, maintenance, and insurance for vehicles 
  • Computers 
  • Essential dietary needs 
  • Goods and services that add pleasure and quality of life (a vacation, a motor vehicle or even a home!) 

Qualified Settlement Funds

Qualified Settlement Funds (QSF) were enacted under Section 468B of the Internal Revenue Code to allow the settlement of lawsuits with multiple claimants before there is an agreement on how settlement amounts will be allocated.  

Qualified Settlement Funds can allow a defendant to pay its policy limits or negotiate a settlement for some plaintiffs while other plaintiffs remain in litigation. It gives the defendant a simple and complete release in multi party litigation.

In order to establish a qualified settlement fund, three requirements must be met. These are:

  • The fund can be any fund, account, or trust that is established pursuant to an order of, or approved by, a governmental entity. 
  • It must be a trust under applicable state law or the assets must be otherwise segregated from the other assets of the transferor. 
  • The claim must be an eligible claim, namely damages arising out of tort, breach of contract or violation of laws; damages arising under the Comprehensive Environmental Response Compensation Liability Act; or any claim designated in an IRS revenue ruling or revenue procedure.  

Treasury-Funded Structured Settlements

U.S. Treasury securities and debt obligations of the U.S. Government are backed by the full faith and credit of the United States, and are perceived by domestic and international investors to be one of the safest bond investments in the world.  For those claimants seeking high-quality and predictable income and principal from their settlement, the Treasury-Funded Structured Settlement (TFSS) is the right choice.

For example, when combining a TFSS with a structured settlement annuity, the options become even greater.  A split-funded settlement can provide diversification and security while allowing the flexibility of lifetime payments.

The TFSS is provided through Midwest Trust, which has nearly $9 billion in assets under administration and is committed to providing fiduciary services designed to meet your needs, from living trusts to estate settlement.  

TFSS has compiled a guidebook covering the statutes, rules and, in some jurisdictions, local customs that govern the settlement of minor's claims, and in doing so, address the usage of one of the most popular and powerful tools available for settling minor's claims: Structured Settlements. TFSS provides the unparalleled security afforded by US Government obligations, deemed to be the safest financial instruments available and rated AAA by Fitch,  Aaa by Moody's and AA+ by S&P.

Congress recognized the importance of structured settlements for minors in the Fiscal Year 2000 Budget of the US Government, where Senator Max Baucus stated that "many successful litigants, particularly minors, have dissipated their awards in a few years and are then without means of support; whereas periodic payment settlements, on the other hand, provide plaintiffs with a steady income over a long period of time and insulate them from pressures to squander their awards."  

The TFSS-International offers significant tax benefits, enhanced rates of return, and flexibility of timing of the periodic payments, among other benefits for non-qualified settlements.   

  • Some Options for Using TFSS-I
  • Attorney Fees
  • Divorce
  • Construction Defect
  • Breach of Contract
  • Workers' Comp
  • Disability
  • Installment Sales
  • Employment Litigation
  • Environmental
  • Extra-Contractual
  • Property Disputes
  • Lottery/Contests
  • E&O/D&O
  • Non-Physical Injuries
  • Punitive Damages

TFSS-I benefits include:

  • Maximize Settlements and Minimize Taxes. Nonqualified structured settlements can defer the receipt of income into future years, potentially minimizing exposure to AMT and avoiding higher taxes in the current tax year. Tax issues can be very important in designing a financial resolution that satisfies all parties involved.
  • Transfer Risk and Reduce Costs. A Nonqualified structured settlement can eliminate the risk of changes in investments or interest rates.
  • Increased Flexibility. The payment stream to the claimant can be designed to meet a variety of needs, including lump sums, immediate payments, deferrals, or some other combination.
  • Unparalleled Experience. TFSS-International is supported by the industry's leading experts in nonqualified structured settlements, including the author of PLR 200836019, which first established the use of structured settlements for taxable settlements. We can provide high level assistance for a broad range of non-qualified cases and can be a resource for complex issues.

 

Other Non-Qualified Structures

The use of a non-qualified annuity can be considered in any transaction wherein the parties would benefit by receiving an annuity stream instead of up-front cash. The benefits include:

  • Deferring Tax Liability: Non-qualified annuities can defer the receipt of income into future years, thus avoiding paying potentially higher taxes in the current tax year. Tax issues can be very important in designing a financial resolution that satisfies all parties involved. The Alternative Minimum Tax can potentially be reduced or avoided.
  • Fully Guaranteed Payments: Structured Financial Associates uses secure and highly capitalized life insurance companies. Returns are fully guaranteed; once agreed upon, the future periodic payments are not subject to either interest rate risks or market fluctuations.
  • Customizing Timing of Payments: Payments from a non-qualified annuity can be customized to match the specific requirements of the parties involved in the transaction. This flexibility provides assurances necessary to conclude the transaction. Periodic payments can be guaranteed for a specified period of years or can be made throughout the lifetime of the recipient. Under some circumstances, the annuitants can be medically underwritten which can potentially increase payment amounts for the same costs.
  • Saving Time and Reducing Costs: The benefits provided through a non-qualified annuity can facilitate a more efficient negotiation process therefore minimizing overall costs.

 

Non-qualified annuities can be used In cases involving:

  • Attorney Fees
  • Structured Installment Sales
  • Employment Issues —  Wrongful Termination; Age, Gender or Race Discrimination;
  • Sexual Harassment, E&O, D&O and related claims
  • Divorce Settlement
  • Construction Defects
  • Environmental Litigation
  • Punitive Damage Awards
  • Legal Malpractice
  • Property Disputes
  • False Arrest/Imprisonment
  • Pre-& Post-August 5, 1997 Workers’ Compensation Claims
  • Disability Policy Buyouts
  • Breach of Contract
  • Lottery/Contest Winners
  • Fraud Claims
  • Psychological Damage Claims