When settling a personal injury case, it is not uncommon for the claimant to have unclear expectations of the true impact that an injury will have on their long-term physical and financial well-being. Claimants who aren’t currently receiving needs-based government benefits may find themselves in need of financial assistance in the future—and out of luck if their assets are too high to qualify for assistance. Fortunately, a “trigger trust” may help certain injured claimants remain eligible for needs-based benefits while still providing access to their settlement funds.
Special Needs Trusts and Needs-Based Benefits
Before discussing trigger trusts, it is necessary to review special needs trusts. Special needs trusts (SNTs) are excellent tools for personal injury claimants who are receiving needs-based government benefits. With ever-rising medical costs, many claimants simply cannot afford to lose access to benefits that assist with medical, financial, and living expenses (i.e., Medicaid [Medi-Cal in California], SSI, subsidized housing, and SNAP). By placing the settlement funds in an SNT, the settlement proceeds are no longer considered a countable asset when determining government benefit eligibility. The claimant can then use funds from the SNT to supplement expenses not covered by government benefits.
What happens to claimants who do not receive needs-based benefits at the time of settlement, but who require assistance in the future? Here’s an example:
Barbara, 43, was involved in a slip and fall injury, resulting in debilitating headaches and a fractured wrist. Barbara initially felt that she could return to her full-time job as a customer service representative making $45,000 per year. After being back at work for a few months, Barbara found herself unable to handle the physical demands of a full-time position, so she had to quit her job. As a single woman, Barbara suddenly found herself without income and healthcare coverage. She still had about $150,000 in the bank from her settlement proceeds but knew that her frequent doctor visits, medications, rent, utilities, food, and other living expenses would quickly eat up her money. Unfortunately, because her assets far exceeded the $2000 limit for most government benefit programs, Barbara did not qualify for assistance.
Here’s how a trigger trust could have helped someone in Barbara’s situation:
Instead of paying the settlement funds to the Barbara in a lump sum, the proceeds are used to establish a trigger trust. Initially, the trustee may make distributions to cover a range of Barbara’s needs. In this initial stage of the trigger trust, the trustee has broad discretion over the purpose, timing, and amount of distributions for Barbara’s benefit.
When Barbara’s circumstances change due to the loss of her job, the trust can be “triggered” to convert into a special needs trust. At that point, Barbara may be eligible to receive needs-based government benefits, while the trustee can make distributions to supplement many of Barbara’s expenses not covered by government benefit programs (note: there are state- and county-specific guidelines as to which goods and services are eligible for SNT distributions).
Contact us to learn more
The Traci Kaas team has assisted thousands of injured claimants in developing comprehensive settlement plans to meet their needs. Whether you have questions about government benefits, trusts, structured settlement annuities, or any other aspect of settlement, we are here to help. Contact us today at 800-354-2258 or firstname.lastname@example.org.