Special Needs Trusts Can Preserve Medical
Assistance For The Disabled Plaintiff by Pamela S. Foresman & Jack Kuffel
For the past three years, you have ag-
gressively litigated the claims of a catastrophically disabled client. You have witnessed first-hand the trials and tribu- lations of caring for your client. You have diligently pursued all claims to maximize your client’s recovery. Now, the hard work has paid off. The case is near settlement; or a jury has re- turned a verdict in your client’s favor. What happens next? Well, after the ini- tial feeling of success and relief, you tally expenses, take your fee, negotiate the re- lease and move on to the next case. At first, your client’s family may feel the same way. Before long, however, they may face a new set of problems that result from a sizable monetary recovery.
Avoiding The Loss Of Means-Tested Benefits:
Among other things, a large monetary
recovery may impact a disabled client’s ability to continue to receive or be eligible for benefits under government “means- tested” benefits programs.
Certain
medical/financial assistance programs, such as Supplemental Security Income (SSI) and Medicaid (hereinafter referred to as “Medical Assistance”) have annual “available assets” limits, which are subject to change over time and from state to state. In order to be eligible for these pro- grams, the applicant must not receive income over a certain amount or possess assets above a certain value. When a disabled client receives a mon-
etary recovery that exceeds a means-tested program’s income or asset limits, the cli- ent will lose eligibility for the program and benefits will cease. This proves disastrous for disabled clients for whom these gov- ernment programs provide the only insurance for the expensive medical care and supplies they need. Consequently, the client may be forced to seek medical care and equipment through providers and equipment suppliers on a “fee-for-service” basis – paying top dollar for services and products instead of the reduced rates charged under Medical Assistance. To re- gain eligibility, the client must “spend-down” the monetary recovery un- til the client again falls below the income or asset cap. It won’t be long before the
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recovery is spent and the client is impov- erished again.
The blessing of the
monetary recovery now seems like a curse. When the disabled client or the client’s family or guardian discovers this, in all likelihood they will demand that some- thing be done. Without answers, the relationship between the attorney and the client and the client’s family or guardian will erode. An attorney ignorant of the critical impact that funds received through settlement or judgment can have on the disabled client’s eligibility for collateral source benefits from local, state or fed- eral programs may expose the plaintiff’s counsel to potential malpractice or a sub- sequently appointed guardian acting on the client’s behalf. This result, however, can be avoided.
Preservation Of Medical Assistance
Through Use Of A Special Needs Trust: One way to preserve a client’s assets and maximize the monetary recovery re- ceived upon settlement or verdict is to utilize a Special Needs Trust (also known as a supplemental needs trust, supplemen- tal care trust, a disability trust or a (d)(4)(A) trust). Use of this type of trust
in personal injury suits has increased sig- nificantly since the passage of the Omnibus Budget Reconciliation Act of 1993 (hereinafter referred to as the “Act”). Under the Act, settlement proceeds or a monetary award can be used to fund a Special Needs Trust to provide for the needs of the disabled client which are not otherwise provided for through govern- ment means-tested programs.1
Assets
properly transferred to and held in a prop- erly drafted trust are not considered “available” to the beneficiary because title to the assets does not vest in the benefi- ciary. Assets held in a Special Needs Trust are owned by the trust, not the benefi- ciary. The trust’s structure provides that the beneficiary has no ownership interest in, and is not entitled to demand pay- ments from, the trust. This structure not only prevents trust assets from being con- sidered a resource in determining the Medical Assistance eligibility of the ben- eficiary, but may also provide critical protection from creditors of the benefi- ciary.
1 42 U.S.C. 1396 p(d)(4)(A) (1994).
Pamela S. Foresman is an associate with the law firm of Dugan & Jakubowski, P.A., which concentrates its practice in the areas of birth injury litigation, medical malpractice, product liability and catastrophic personal injury. She received her J.D. from the University of Baltimore School of Law. She is member of MTLA presently serving as a member of the Trial Reporter Committee. Ms. Foresman also is a member the Maryland State Bar Association and ATLA, and she serves as co-chair of the Program/Membership Committee for the Baltimore Women’s Bar Association.
Jack Kuffel is an estates and trusts attorney and is an associate in the firm Tydings & Rosenberg, L.L.P. of Baltimore. He received his L.L.M. from the University of Miami School of Law and his J.D. from the University of DePaul School of Law. Mr. Kuffel’s practice includes life insurance trusts, special needs trusts, and lifetime revocable trusts. He also handles probate matters and the preparation of federal estate tax returns and fiduciary income tax returns.
Trial Reporter Winter 2000
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