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Settlements: Preserving claimants' benefits.

When a minor, or a disabled or an incompetent claimant has been the victim of a tort accident and receives compensation for injuries sustained in that accident, the use of one or more trusts as part of the structured settlement plan can preserve and expand the size of the recovery.

Trusts that may be used in conjunction with a settlement annuity include Special Needs Trusts/Supplemental Needs Trusts, Living Trusts, Custodial Medical Trusts, Medicare Set-Aside Trusts and Reversionary Medical Trusts. These trusts are intended specifically to assist claimants requiring long-term medical care to ensure that funds will be available when needed. The trusts are set up with an initial cash reserve, which is left in a deposit account administered by a trustee who invests and manages the principal. The claimant is the beneficiary of the trust.

One or more of these trusts should always be considered when handling a catastrophic case. Claimants who are quadriplegic, paraplegic, brain damaged, or otherwise at serious medical risk would most likely benefit greatly from some type of trust approach. This is especially true for cases involving minors.

Special Needs Trusts/Supplemental Needs Trusts are intended to supplement rather than supplant government entitlement program benefits. Although Medicaid and Supplemental Security Income (SSI) are federal programs, they are subject to state regulations and administered according to state guidelines. The specific requirements and procedures for Special Needs Trusts vary from state to state, and there are differences between the Medicaid rules and those for SSI. Also, differences may exist between the federal rules and a state's requirement. Both state and federal statutes and regulations must be reviewed to ensure compliance.

Eligibility for government aid programs is based on need, an claimants receiving substantial damage awards would most likely lose their government support. In fact, those having countable resources in excess of $2,000 and countable income in excess of $446 per month are not eligible for SSI benefits. Therefore, a windfall as little as $2,000 could mean the loss of government benefits, which in itself could be a catastrophic event.

In order to be eligible for Special Needs Trusts, claimants must satisfy three criteria. First, they must have a disability that substantially impairs their abilities to provide for their own care or custody. Secondly, they should have special needs that would otherwise not be met. Lastly, funds paid to the trusts may not appear excessive for the claimants' special needs.

The trust must have a trustee (trust administrator), a settlor (parent, grandparent, court, or guardian), and a beneficiary (the claimant). Tax-free settlement annuity payments are directed to the trust, which allows discretionary disbursements for, special needs without such expenditures' being treated as income or as a resource. The trust can pay for consumables other than "food, clothing, or shelter," cover items such as therapy, rehabilitation, equipment, hospitalization, medications, periodic evaluation, nursing care, routine doctor visits, transportation modification, and attendant care.

Although the trust can hold an unlimited amount of funds, the payment schedule should pay the trust only enough necessary for the claimant's needs. Funds remaining in the trust when the claimant dies may revert to the government up to either the amount paid to the beneficiary by the government or the limit of the trust.

When a disabled claimant receives settlement funds from a personal injury, the Supplemental Needs Trust enables the injured party to receive government entitlements such as Medicaid and Supplemental Security Income with no ineligibility period.

If a parent, grandparent, legal guardian, or court establishes a trust fund with the assets of a disabled claimant under age 65, the trust fund will not be subject to the rules considering income and principal available to the beneficiary. This is true as long as the state will receive all amounts remaining in the trust on the death of the disabled claimant up to an amount equal to the total amount paid by Medicaid.

Together, the tort recovery and the government benefits create a partnership that preserves the quality of life for the most vulnerable members of society. Very often, this enables disabled individuals to avoid premature institutionalization. These trusts are especially comforting to parents whose life expectancy is shorter than that of their children.

Custodial Medical Trusts assist in monitoring medical paym4nts in settlements involving as to the future medical needs of a minor claimant. A Custodial Medical Trust may be set up to administer all medical expenses the claimant might incur, prior to reaching age 18 or 21, depending on the state in which the claimant resides. This arrangement does not require guardian or administrator to petition the court for funds each time a medical expense arises.

In setting up a Custodial Medical Trust, a portion of the settlement funds is placed either directly into a Custodial Account or settlement annuity funds are directed into the Custodial Account after an initial cash deposit to open the account. A Custodial Medical Agreement is executed between the claimant (the claimants guardian or administrator of the claimant's estate) and a medical ins ance claim service. This agreement states the specific parameters for allowable benefits. On submission of medical bills by the guardian, the claim service determines if they are allowable medical expenses and proceeds to pay them. The court need not monitor the guardian or estate administrator, and any benefits not used for medical expenses will accrue and be distributed to the claimant upon reaching legal majority.

Setting up a Custodial Trust Agreement with a medical claim paying service eliminates the high minimum fees of a bank trust department.

Medicare Set-Aside Trusts preserve Medicare benefits in workers' compensation settlements, just as a trust is necessary to preserve Medicaid benefits in a tort case. This trust is funded with a lump sum, specifically designated in the release and settlement for those medical bills which Medicare would otherwise be required to pay. The claimant submits bills related to the injury or illness to the trustee. Each year, the trustee provides an accounting to Medicare. When the monies in the trust are exhausted, the claimant is eligible for Medicare benefits for all covered medical expense, whether work-related or not. Typically these funds can be spent down in one to 10 years.

Reversionary Medical Trusts are set up by the defendant for the benefit of the injured party. After the death of the injured party, however, any remaining funds in the trust, or some portion thereof, usually revert to the defendants or their insurance carriers, These trusts work well in cases where there is uncertainty as to the life expectancy of the injured party and the kind of care that will be needed.

Each claimant's unique needs will dictate which trusts should be used as part of the overall structured settlement plan. The flexibility of the settlement annuity's design, which will fund the trusts, will ensure that those needs are met. Consulting with legal counsel, who specialize in setting up these trusts, helps assure that the trusts comply with both state and federal statutes and regulations.

Tom Murray is an associate in the New York office of Ringler Associates, a settlement annuity firm. Teddy Snyder is a settlement annuity specialist in the firm's Los Angeles office.

RELATED ARTICLE: CASE EXAMPLE

Using a Medical Trust to Retain Government Benefits

In this example, the wrongful death of a minor child left behind a large family and a defendant with a $300,000 policy limit. The dilemma in settling the case hinged on the family's losing its government health and welfare benefits if settlement were accepted. No plaintiff attorney was involved in the case. The structured settlement specialist and the claim person, along with representatives from the government and the court, negotiated a settlement that protected the family's government benefits and provided them with some lifetime tax-free income and security. A Medical Trust with a guardian was set up to handle the settlement funds. The trust funded several annuities: one annuity paid the parents $250 per month for life, and another annuity, which was deferred for 20 years, will pay them $500 per month for life for retirement. Other deferred annuities were set up to provide each surviving child with college funds in the form of four lump-sum annual payments beginning when each child reaches age 18. By usi ng the trust to manage the settlement funds, the family was able to keep its government health and welfare benefits.

Medicaid Deters Lien Reimbursement for Special Needs Trusts

Medicaid accepted reimbursement of a Special Needs Trust lien over time via an annuity. In the following individually designed structured settlement, the claimant became a quadriplegic as a result of a vehicular accident and required lifetime medical care and support. The case had been mired in negotiations for a long time due to the $500,000 medical lien, which represented a large portion of the claim.

The case was finally concluded after the structured settlement plan reduced the cost of the lien by approximately $200,000. By deferring the lien payment with an annuity, the cost of the settlement was reduced and the government agreed to retire the lien. The cost of the settlement was $1,290,836 and the claimant's projected lifetime yield is $2,479,542.

One Claimant, Three Trusts

In this case, the 56-year-old claimant with a 23-year life expectancy was injured at work and left a paraplegic. He was entitled to lifetime indemnity arid medical. The case involved immediate payment to the claimant for indemnity and immediate payment to seed a Custodial Medical Care Trust bas on a life care plan. A Special Needs Trust and a Medicare Set-Aside Trust were also included in the settlement. The cost to provide an expected yield of $729,048 was $311,446.
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Author:Murray, Tom; Snyder, Teddy
Publication:Claims
Date:Nov 1, 2001
Words:1617
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