If a person with a serious injury or disability receives an unexpected inheritance, large settlement or other windfall, their eligibility for Medicaid and/or Supplemental Security Income (SSI) can be jeopardized. In some cases, the loss of these benefits can result in the loss of services that are vital to a person’s independence or well-being. Federal law recognizes that, for those beneficiaries under the age of 65, maintaining their public benefits can be critical to maintaining their future care. So, buried within the Federal Medicaid statutes are the provisions that create what we refer to as self-settled special needs trusts, or d4A trusts (after the authorizing statute).

These trusts serve a unique purpose – allowing a disabled individual under the age of 65 to create a trust with his or her own funds that is exempt for purposes of Medicaid and SSI eligibility. Currently, the trust may only be established by a parent, grandparent, guardian or court. Legislation currently pending in Congress would expand this to allow a capable disabled individual to establish his or her own trust.

There is one drawback to these trusts – at the death of the beneficiary, the trust must first repay the state for any benefits paid to the individual during his or her lifetime. However, in most cases, these benefits are provided at a much lower rate than the beneficiary would have been able to obtain in the regular marketplace, so, even if the payback is made, there will still be a net saving in assets.

More importantly, the funds in the trust remain available during the beneficiary’s lifetime to provide all of the necessities that would otherwise be unavailable if the funds were exhausted on medical care. For example, a child who receives a medical malpractice settlement due to a catastrophic injury at birth can set aside his or her funds in a d4A trust and use those funds for educational and care needs not covered by Medicaid waiver services. The funds can provide care for a disabled child to allow a parent to return to work, equipment to allow a child to communicate or be entertained, or even travel to allow a beneficiary to visit family members.

A special needs trust provides that a trustee has the sole discretion to make distributions for any of the beneficiary’s needs, so long as the distributions do not disqualify the beneficiary from public benefits. The trustee has broad authority to analyze the beneficiary’s needs and the amount of trust assets to determine how the funds can best be used to enhance the beneficiary’s overall quality of life.

Establishing this type of trust requires specialized drafting to ensure that the trust meets with the Social Security Administration’s ever-changing rules and regulations. The attorneys of Tuesley Hall Konopa, LLP have the expertise and knowledge to ensure that a sudden windfall is used to its maximum potential to benefit an injured or disabled person and that the funds are protected in the most effective manner.

Author: Jennifer L. VanderVeen is a certified elder law attorney (CELA) at Tuesley Hall Konopa, LLP where she counsels clients on long term care planning, Medicare, Medicaid, veterans benefits applications, guardianships, special needs trusts, and complex estate planning issues. Jennifer frequently speaks to community groups on caregiver responsibilities and caregiver burnout.

You can contact Jennifer by calling 574.232.3538 or by email jvanderveen@thklaw.com.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.