Trust Services
National Settlement Consultants through its partners offers plaintiffs with a wide array of trust services. Our commitment to providing plaintiffs with the most comprehensive approach to managing his/her settlement recovery often necessitates the utilization of a trust including Special Needs Trusts, Medicare Set-Asides, Settlement Preservation Trusts and 468(B) Qualified Settlement funds to safeguard and maximize the funds and resources available.
NSC’s settlement consultants and partners work with plaintiffs and their attorneys to 1) Determine if and when a trust is appropriate 2) Draft and implement the trust 3) Manage the trust assets.
- What is a Special Needs Trust and when is it appropriate?
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Common knowledge is the fact that government programs - in the form of Supplemental Security Income (SSI) and Medicaid – are very important for people with disabilities in need, as they provide cash benefits as well as important medical coverage and long-term supports and services. The income level and financial resources of an individual with a disability, or family who is applying on behalf of their child with a disability, must not exceed a certain level in order qualify for these government benefits. Benefit recipients are allowed to retain only a total of $2,000 in assets, with some exceptions. A person with a disability receiving SSI, who accumulates more than $2,000 in cash resources, may lose SSI and, possibly, Medicaid.
Fortunately, the government established rules allowing assets to be held in trust for a recipient of SSI and Medicaid, as long as certain parameters are met. These trusts, called Supplemental Needs or Special Needs Trusts (SNTs), preserve government benefit eligibility and leave assets that will meet the supplemental needs of the person with a disability‹those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid. The SNT can fund those additional needs. In fact, the SNT must be designed specifically to supplement, not supplant, government benefits. Money from the trust cannot be distributed directly to the person with a disability. Instead, it must be distributed to third parties to pay for goods and services to be used by the person with a disability.
The SNT can be used for various expenditures such as:
- Out-of-pocket medical and dental expenses
- Eyeglasses
- Annual independent check-ups
- Transportation (including vehicle purchase)
- Maintenance of vehicles
- Insurance (including payment of premiums)
- Rehabilitation
- Essential dietary needs
- Purchase materials for a hobby or recreation activity
- Purchase a computer or electronic equipment
- Pay for trips or vacations, pay for entertainment like going to a movie, a ballgame, concert, etc
- Purchase of goods and services that add pleasure and quality to life: videos, furniture, or a television
- Athletic training or competitions
- Personal care attendant or escort
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- How is an SNT set up?
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The laws governing trusts are complex and are subject to changes in legislation that may vary by state and which could affect a person¹s eligibility for the government benefits that they depend upon. New laws have considerably tightened the eligibility criteria for receiving government benefits and thus have affected many aspects of the way SNTs are drawn up. These regulations are complex and require a strong knowledge of the current legislation and how it impacts people planning for their child with special needs in order to preserve eligibility.
Setting up a special needs trust requires coordinated planning with an attorney knowledgeable in special needs planning who can draft a will and necessary trust documents.
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- Managing the SNT
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Having an SNT requires a trustee to be appointed. A trustee is one who manages another property and may be a person or an institution such as a bank. In this case, the trustee is the manager of the trust and has general unlimited discretion to use trust proceeds provided for the needs of the individual with a disability. The trustee may be given full discretion to manage the money in the trust and to decide how the money is used for the person's benefit. The SNT should be drafted in such a way as to direct the trustee in how to use the trust's resources for the individual's needs.
Trustees should have good money management/financial skills. The SNT will likely exist for a long period of time. Trustees should be chosen with longevity in mind, and the trust itself should be drafted to adjust to changing circumstances, such as to allow trustees to be changed or removed.
After the death of the individual with a disability, the trustee oversees the final arrangements and the SNT usually ends. However, the trustee may terminate the SNT if laws change or the SNT is challenged by the government.
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- Pooled or Community Trusts
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In addition to the above, another form of special needs trust for a person with a Disability is the Pooled Income Trust also known as a Community Trust. These trusts contain the assets of a person with a disability and must meet the following criteria:
- Must be established and maintained by a nonprofit organization which maintains separate accounts for each individual with a disability, but for management of funds, the accounts in the trust fund are pooled and each account is set up with the sole purpose of benefiting an individual with a disability. The Pooled Income Trust may be funded by the individual with a disability as well as a parent, grandparent, legal guardian, or court;
- The funds remaining in the trust after the individual dies may be designated to be retained by the nonprofit organization, but if not, the state may claim the right to be reimbursed for medical expenses paid on the individual's behalf.
There are many nuances and complex issues involved in setting up a plan for the future of an individual with special needs which must be handled correctly. There is too much at stake for the individual to loose if proper planning is not in place. It is crucial to find an attorney experienced in trusts involving a person with a disability.
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- What is a Medicare Set-Aside and when is it appropriate?
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The Center for Medicare and Medicaid Services (CMS) has stated that all workers' compensation cases where the injured party is a Medicare recipient or is expected to be a recipient within 30 months of date of settlement, or if the amount of settlement is over $250K, Medicare's interests must be considered. A Medicare Set-Aside Allocation amount is determined through the analysis of the particular case. Medicare considers the allocation to be the primary fund for paying Medicare covered expenses compensable to the injury. Once the allocation amount is exhausted, Medicare becomes the primary payor of the Medicare covered expenses for the compensable injury.
42 U.S.C. Sec 1395Y provides the following:
- The Centers for Medicare and Medicaid Services' interest be protected
- The Centers for Medicare and Medicaid Services have monetary rights against plaintiffs, plaintiff attorneys and plaintiff advisors when the services' interest is not protected
- The Centers for Medicare and Medicaid Services have double recovery rights against insurance carriers, their legal counsel and their advisors when the interest of the services' is not protected
- There are potential penalties that Medicare can levy against the workers' compensation carrier or self-insured corporation as well as the injured party for not considering Medicare's interest.
- Compliance can be achieved by depositing cash in a Medical Set-Aside Trust ("MSAT") equal to the present value amount required to adequately fund all future medical expenses. A structured arrangement in combination is also possible whereby payments are made on a defined schedule to cover expenses paid for future years.
We work with partners who provide the services required to help keep you in compliance.
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- What is a Settlement Preservation Trust and when is it appropriate?
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A Settlement Preservation Trust ( SPT) is an alternative periodic payment funding device that can be used alone or in combination with an annuity. It can provide:
- Spendthrift protection
- Liquidity
- Flexibility
It's possible that a plaintiff will experience a major change in his/her financial position at some point following the settlement of his/her personal injury claim. The SPT provides financial flexibility and controlled liquidity when such a change occurs. The SPT best serves Plaintiffs who have future needs that are uncertain, unpredictable, subject to adjustment and/or event contingent.
Other Features/Advantages of an SPT
- As interest rates rise, additional income accrues for the benefit of the plaintiff.
- The trustee can manage the trust to accommodate changes in the plaintiff's tax profile. For example if the plaintiff has significant medical expenses then taxable income might be preferable to permit offsetting deductions.
- Used in conjunction with a structure one can protect structure payments that were intended for college from wasteful dissipation by new adults.
Funding for an SPT is a simple deposit, does not require any Defendant/Insurer involvement It can come from any source, including directly from the plaintiff (via cash settlement), or it can be fed by way of payments from an annuity structure. Distributions can take the form of adjustable periodic payments for medical health and tax needs, emergency needs and virtually any payment mode except life contingency. Limited personal discretion is a spendthrift feature of the SPT to protect the injured party. Payments can be designed for taxable or tax-free distributions.
The administration of the SPT is set up with the injured party in mind. Beneficiaries enjoy lower minimum deposits (typically $30,000) and lower ongoing fees than one might expect from a trust company.
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- What is a 468(B) Qualified Settlement Fund and when is it appropriate?
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The Designated Settlement Fund concept was created in 1986 under Section 468B of the IRC to enable defendants to deduct amounts paid to settle multi-plaintiff lawsuits before it was agreed how these amounts would be allocated. In these cases, the defendants and plaintiffs had agreed how much the defendant or their insurers would pay to settle the cases collectively, but not individually. The defendant benefits by being able to accelerate its deduction to the date that the settlement amount paid is to the Designated Settlement Fund (DSF), rather than when each plaintiff is paid.
In 1993, the Treasury issued regulations for the "Qualified Settlement Fund" or QSF, 26 CFR 1.468B-1. When a QSF is established, it assumes the tort liability from the original party before the settlement is made, at which time the original party is dismissed with prejudice. The QSF then stands in the shoes of the original party with the Plaintiff. The QSF may enter into a Settlement Agreement with the plaintiff(s) and can enter into a Qualified Assignment, pursuant to Rev. Proc. 93-34".
Plaintiff attorneys now favor these funding agreements because they can then have greater control of the settlement funds while determining appropriate distribution amounts to their clients. Obtaining the money early eliminates risk of insolvency of the defendant or its insurer and allows time for an agreement on allocation and negotiation of lien claims. Moreover, Plaintiffs have more flexibility in making appropriate choices for distribution of the settlement in cash, in structured settlements that can provide a secure income stream, or in Supplemental Needs Trusts to preserve Medicaid and Supplemental Security Income (SSI), and can benefit from interest accumulation of funds, in the QSF, if the distributions are not timely.
A QSF or DSF should be considered in tort, class action, or environmental (CERCLA) lawsuits involving one or more claims and the Defendant(s) or insurance carrier(s) is (are) willing to comply in exchange for a complete General Release from the Plaintiffs. Under these circumstances, the court can order that the defendant pay the agreed settlement amount into a "QSF or DSF within the meaning of the 468B-1 of the Treasury Regulations". This can be a simple checking account or a more complex trust agreement using a bank trust department. The settlement proceeds remain in the QSF or DSF subject to the continuing jurisdiction of the court. After the dispute is resolved, the court approves the allocation and orders the payment of settlement proceeds and the fund may be closed.
We have helped numerous parties achieve their goals through the use of a QSF and have developed an efficient process for handling such cases.
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