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John Bair
John Bair
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Settled and your client is on Medicaid, now what? What is a pooled special needs trust?

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SNT copyState based government benefits like Medicaid, Social Security Income(SSI), food stamps and HUD housing benefits are vital to making it emotionally and financially each and every month.

These benefits are income tested, although in some states they are also asset tested benefits. Understanding the criteria for “eligibility” is an important part of their lives.

If you represent them, or are reading this for a loved one, this post intends to give you the basics on what to do, how to proceed if the lawsuit is settling, and everyone wants to know what their options are.

Can you just take the cash?  Of course, that is the first fundamental question.  As you will learn, everything you do with money when you are on state and federal based government assistance programs will have a consequence.  You are entitled to take your settlement in cash, and that may be the best course of action.  Under most states, there are “spend down” provisions which generally allow you to spend most of your settlement down within a certain time frame and not jeopardize any of your benefits.  If you park the settlement in the bank, most states will disqualify you for your current benefits, until it’s spent down.  Here is a good resource for spending down a settlement.  Spend Down? A home is an exempt asset, however most special needs trusts will not allow for a direct payment for shelter or rent, if the recipient is on SSI.  The special needs alliance is also a great resource for parents.

Due to the onerous limits, most clients receiving a settlement who wants to continue recieving benefits, will have to navigate state based Medicaid and pooled/individual special needs trusts.  The good news is, your settlement proceeds won’t just go to pay for your healthcare, and you shouldn’t be right back on welfare when the money runs out.  Social services law in all states typically provides for a way to create a qualified transfer to a trust, and to keep your benefits, even if you over the age of 65*.

Our firm advises and consults with attorneys throughout the nation on individual and mass tort settlements, where the range of the net settlement to the client is as little as $10,000 to as much as $300,000.  In my opinion, no matter the amount, if your client is on Medicaid, it’s best to consult with an expert who does that everyday.  With net amounts greater than $200,000 it may be worth considering the upfront legal drafting costs of an individual special needs trusts.  The long term recurring annual costs should be given significant consideration in your evaluation.  General benefits like control over the trustee, customized services, a dedicated trust administration staff and greater control over the investments are hallmark advantages to an individual trust that may outweigh any increase in annual administration costs.

Any special needs trusts we are involved with carries a 1.3-1.5% annual all in cost, which is comparable, and in many situations even more cost effective than pooled trusts.  The biggest difference is in the upfront costs for individual special needs trusts, which I’ve seen range from $4000-$10000.  We advise our clients of the availability of both, depending on their age and the state they are in.

Pooled trusts are not complicated to understand, but the documentation and the process of getting “ajoindered” can seem overwhelming for clients, especially ones not accustomed to legal terms, handling their finances or dealing with issues with this type of complexity.  The good news is, there are host of good options for pooled special needs trusts, and many mass tort lawyers prefer to rely on an expert for this purpose.  We receive calls daily from settlement counsel with examples like, I have a client in Arkansas who will net $34,000 after fees and costs and is on medicaid, what are my options?

There are two types of pooled special needs trusts in my opinion, they are national in scope, and those that are established in just a particular state.  The Association for Retarded Children(ARC) runs a number of state based pooled special needs trusts, and is a good reliable place to get educated about them.  There is also the Commonwealth Community Trust(CCT). The special needs alliance maintains a list by state that is also helpful. 

The most common questions people want answers to are: how much does it cost? Who gets the money on my death? What can my settlement money be spent on? and How hard will it be to deal with the trustee?  Comparing one trust to another can be very tedious, and the bottom line, is you won’t know what it will be like dealing with them until you are in bed together.  Do your homework.   We are not in the pooled special needs trust business, but have built a good working relationship with many of them in order to serve our clients.

The planning in these cases is critical for the clients, especially in the smaller denominations, it’s a real value to most of them to have an experienced advisor who has done this hundreds of times.  Not only does it take the stress out of the process, but the client will feel more confident about their final decisions, and will more than likely appreciate the referral to a settlement planner. 

*Not all states allow their Medicaid recipients over age 65 to ajoinder to pooled trusts.  You may need to hire an attorney to insure that any transfer to a pooled trust, national or state based won’t jeopardize your benefits as a disqualifying transfer.