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Earlier this week, we discussed some of the factors a comprehensive settlement planner will consider when determining whether a special needs trust is the right move for an injured party receiving a settlement. One of the alternative options mentioned is a pooled special needs trust. Below, we elaborate on the basics and benefits of this type of trust.

When settlement is coming, one of the first questions an injured plaintiff (or his or her parents) will ask their attorney is: “What can we do with this money?” The answer depends on whether the person receiving the settlement is also a beneficiary of means-tested government benefits like Social Security Income (SSI) and/or Medicaid. If this is the case and the suit has settled for between $10,000 and $200,000, attorneys will typically recommend a trust, a structured settlement, a guardianship account or conservatorship.

Why not take the lump sum and plan later?

People receiving SSI and/or Medicaid typically cannot have more than $2,000 to their name without disqualifying them for their benefits. This basic benefits issue raises the challenging question of what to do with the settlement proceeds. Social services laws in all states provide for special needs trusts under the Omnibus Budget Reconciliation Act of 1993 (OBRA-93). A pooled special needs trust might be the right tool to keep receiving benefits while getting good use of the settlement money. This type of trust is sponsored by a state- or nationally-based charitable organization and is administered by the charity and most likely an administrative trustee.

When might a pooled special needs trust be useful?

For smaller settlements, a pooled special needs trust can be an efficient way to get financial protection for years to come. It’s also a lower cost option than an individual special needs trust, which can be expensive to establish and maintain.

The only reason to rely upon a pooled special needs trust is to protect SSI/Medicaid benefits now and/or in the future. If this need is not a concern, another type of trust may a better planning choice.

With a reliable trustee, a pooled special needs trust is a good long-term choice when assets from a settlement are limited or need to be spread out efficiently for a long time. In addition, the money from settlement can supplement the government benefits that are available. Given the restrictions that go with these types of trusts, this is usually better than having just the settlement proceeds and losing the government benefits.

If you are about to settle your personal injury case, it’s important to know your options before settlement arrives to avoid a negative impact on government benefits. Feel free to contact Milestone Consulting with any questions.

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