Incapacitated or specially challenged people often require sophisticated settlement planning to ensure they do not lose the government entitlements they desperately need. Their plan also needs to leave them flexibility to handle unexpected future expenses and replace their lost income. A well-designed settlement plan can address all of these issues.

Incapacitated or specially challenged people often require sophisticated settlement planning to ensure they do not lose the government entitlements they desperately need. Their plan also needs to leave them flexibility to handle unexpected future expenses and replace their lost income. A well-designed settlement plan can address all of these issues.

It may be necessary for them to establish a special needs trust. A Special Needs Trust (SNT) may enable an injury victim to preserve the settlement proceeds without losing needs-based entitlements like Medicaid or SSI. Structured settlement annuities can be paid directly to the trustee of a special needs trust to help meet ongoing income needs. The benefit of paying a structured settlement annuity directly into a SNT.

SNT, codified under 42 U.S.C. § 1396p(d)(4)(A) and (C), can be established to allow an individual to qualify for needs-based public benefits or to maintain needs-based public benefits. The net settlement recovery that otherwise would disqualify the injury victim for needs-based public benefits can instead be paid into a SNT, which is not considered an asset of the injured client. The SNT is then used to pay for "supplemental" needs. In general, disbursements cannot be made for food and shelter, but can be made for a wide range of goods and services that enhance the injury victim's quality of life and provide for their supplemental needs that are not covered by Medicaid.

The trustee of the SNT must be someone other than the trust beneficiary. The funds must be used for the exclusive benefit of the trust beneficiary, and each State has very specific rules regarding the types of disbursements that can be made. There are two main types of SNTs that are generally used by settling injury victims, and each has unique requirements and characteristics. The first is typically referred to as a "Self Settled" or (d)(4)(A) trust. The second is referred to as a "Pooled Trust" or (d)(4)(C) trust. A self settled trust requires that the client be under the age of 65, and must contain a payback provision upon the death of the beneficiary for benefits paid by Medicaid. A pooled trust can be established for clients of any age and does not contain a mandatory payback provision, but must be established and managed by a nonprofit institution. Special Needs Trust planning is becoming increasingly complex, and deciding which type of SNT is best for each client is a decision best left to a qualified settlement planner.