Personal Injury Settlements and Public Benefits

If a plaintiff receiving a personal injury settlement or award is a disabled person, then certain issues relating to the impact of the payment and receipt of the settlement or award on the receipt of public benefits need to be addressed.

Some public benefits are administered as "means-tested" or "need-based" programs. Recipients of "means-tested" programs must meet certain resources and income requirements or limitations in order to qualify to receive the benefits.

Examples of "means-tested" public benefits include SSI (Supplemental Security Income), Medicaid, and Food Stamps.

SSI is a federally administered program which provides funds for needy, aged (over 65), blind, and disabled persons. Persons qualify for SSI if such person's income is less than $1,331 per month (2007). The maximum monthly SSI benefit which can be paid to an individual recipient is $623 (2007).

Medicaid is a joint federal and state government program which provides medical assistance to needy persons. Persons must qualify based on medical, resource and income criteria. In Tennessee, Medicaid has been replaced with TennCare-Medicaid. The Tennessee Department of Finance and Administration, Bureau of TennCare, administers the TennCare program and contracts with the Department of Human Services to determine eligibility for the program.

If a plaintiff is receiving "means-tested" government benefits such as SSI or Medicaid, then the receipt of a personal injury settlement or award may disqualify the plaintiff from receiving the benefits.

Certain resources are exempt or non-countable when determining whether or not the plaintiff qualifies for government benefits. Examples of such non-countable resources include: a home; a motor vehicle; personal effects and household goods; and a burial or cemetery plot.

Furthermore, the assets of certain trusts of which the plaintiff is a beneficiary are non-countable resources when determining whether or not the plaintiff qualifies for "means-tested" government benefits.

Federal law only recognizes three (3) trusts, the assets of which are non-countable resources when determining whether or not the plaintiff qualifies for "means-tested" government benefits.

The three (3) trusts are:

(1) A self-settled special needs trust, also referred to as the "d4A SNT" (See 42 U.S.C. Section 1396p(d)(4)(A));
(2) A qualified income trust, also referred to as the "Miller trust" (See 42 U.S.C. Section 1396p(d)(4)(B)); and
(3) A non-profit managed, pooled income, special needs trust (See 42 U.S.C. Section 1396p(d)(4)(C)).

The Miller Trust and the pooled income trust are normally not applicable to plaintiffs in personal injury cases. However, the d4A SNT may be applicable to plaintiffs in personal injury cases under certain factual circumstances.

Special Needs Trust

The d4A SNT is a self-settled trust. In other words, the plaintiff places his or her own money, i.e. the personal injury settlement or award, into the trust.

In order for the d4A SNT to be effective, the following requirements must be met:

(1) the plaintiff must be under age 65;
(2) the plaintiff must be disabled;
(3) the trust must be created by a parent, a grandparent, a legal guardian or the court;
(4) the trust must contain a "payback" provision by which the government is repaid form the remaining trust funds at the plaintiff's death for the value of any public benefits received by the plaintiff during the plaintiff's lifetime.

See 42 U.S.C. Section 1396p(d)(4)(A).

Furthermore, the d4A SNT must meet the following additional requirements:

(1) the trust must be for the sole benefit of the plaintiff (See 42 U.S.C. Sections 1382b(c)(1)(C)(ii)(IV)); and
(2) the trust must be irrevocable (See Tenn. Comp. Rules 1240-1-4 & 1240-1-50).

Advantages of Special Needs Trusts

The advantages of SNTs are:

(a) The plaintiff's eligibility for means-tested government benefits is preserved.
(b) The trust provides continuity of financial management over an extended period of time.
(c) The plaintiff does not have unrestricted use of the funds to spend irresponsibly.
(d) No court-supervised conservatorship or guardianship may be required for the funds.

Disadvantages of Special Needs Trusts

The disadvantages of SNTs are:

(a) The plaintiff (and the plaintiff's legal guardian) has no right to access the funds.
(b) Any distributions from the SNT must be in the sole discretion of the trustee.
(c) Any distributions from the SNT must be limited to supplementing the plaintiff's public benefits.
(d) Costs including attorneys fees and trustee fees.

Definition of Disability

The plaintiff must be disabled for the d4A SNT to be created.

If the plaintiff is an adult, then the adult plaintiff is disabled if the plaintiff "is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months." (See 42 U.S.C. Section 1382c(a)(3)(A)).

Furthermore, the adult plaintiff is considered disabled "only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work." The term "work which exists in the national economy" means "work which exists in significant numbers either in the region where such individual lives or in several regions of the country." (See 42 U.S.C. Section 1382c(a)(3)(B).

If the plaintiff is a minor, then the minor plaintiff is disabled if the minor plaintiff "has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months." (See 42 U.S.C. Section 1382c(a)(3)(C)).

The Social Security Administration provides a series of rules interpreting the definition of disability. For example, disability for social security purposes is not considered short-term or partial, and mere symptoms do not constitute a disability. See SSR 96-3p, & SSR 96-4p. Most of these rules rely on medical evidence supporting the disability. Furthermore, the rules appear to be different based on whether or not the person is an adult or a minor. See 20 CFR 416.924.

Creating a Special Needs Trust

Just as podiatrists do not perform heart bypass surgery, not all lawyers are qualified to draft a special needs trust. Like medicine, the law has become more specialized. A plaintiff should engage a personal injury attorney to make a claim or file a lawsuit on the plaintiff's behalf. Furthermore, either the personal injury attorney or the plaintiff should engage a special needs, disability, or elder law attorney to prepare the Special Needs Trust agreement and required ancillary documents.