• Holding assets in excess of $2,000 can disqualify the plaintiff from the income protection and healthcare benefits provided by these government programs. Income in excess of $20 per month may reduce benefits as well.
• The present value of these future benefits can be worth hundreds of thousands of dollars.
• Failure to advise a client on these issues at settlement can lead to charges of legal malpractice if government benefits are later terminated.

Professional liability insurers have seen a rise in claims and litigation stemming from neglect to preserve these benefits when possible.

What Are Allowable Expenses?

In general, SNTs are set up to cover the costs of goods and services that are supplemental to the beneficiary’s basic needs such as food, shelter and clothing. Expenses for these items cannot be covered by the trust. This leaves a long list of acceptable distributions that can be made by the trustee in many areas that can directly improve the quality of life for the beneficiary.

Liquidity, Taxation and Mortality – Oh My!

SNTs are often funded with a combination of cash and future structured settlement payments. The cash provides the liquidity and flexibility needed by the trustee to operate effectively. Irrevocably funding an SNT with a structured settlement provides two meaningful benefits: tax control and mortality protection. Undistributed earnings in the trust may be taxed at a very high rate. A properly designed stream of income can protect the trust corpus from being overtaxed. Having the funds “delivered” in the form of periodic payments can also help minimize management fees and expenses.

One of the greatest dangers to the beneficiary is outliving the available monies. Structured settlement funding can help to shift this risk to a high-quality life insurance company that will provide payments for the life of the injured party – often at a discounted rate depending on the nature of the injuries and/or pre-existing conditions.

Real-life Horror Story

A case captioned Grillo v. Petiete is often cited where a Texas woman accepted a lump sum settlement for her injured daughter – on the advice of her attorney. The young girl was only expected to live a few years, but survived far longer than the experts predicted she would. The mother later sued, alleging that a structured settlement with a special needs trust would have protected her daughter’s settlement from premature dissipation, provided tax benefits, and protected her SSI and Medicaid eligibility. The malpractice case was later resolved for more than $4 million.

Where to from Here?

Special needs trusts are complicated, and require careful planning and review by a lawyer experienced in estate planning, tax issues and trusts. They also open up extensive planning opportunities to help the injured, and create a more secure future for them and their families.

Each year, Ringler Associates settlement consultants attend “Ringler University,” a series of courses designed to equip them with the knowledge necessary to help the settling parties make the most of the resources available to the injured party. These courses are often taught by some of the nation’s leading experts in their fields. If you have questions regarding these issues, send us an email or better yet, pick up the phone and give us a call. Sometimes we’re even more helpful than duct tape or WD-40!