Special Needs Settlement Planning: The Power of Special Needs Trusts

by Sharon Pope


Well before the injured party you represent signs on the dotted line, you must screen for critical government benefits your client may be eligible for based on need. After you screen for these benefits, consider enlisting the help of a special needs planner if the injured party is a recipient (or could become a recipient) of these government benefits.[i] Maintaining or obtaining government benefits can be essential to the long term security of the injured party post-settlement. Furthermore, the personal injury attorney who ignores this step risks facing a legal malpractice suit.[ii]

Many injured parties rely on government benefit programs such as income from social security and healthcare coverage from Medicaid.  This article will discuss the government programs which are based on need and thus in danger of being discontinued when there is a settlement.

Special Needs Settlement Planning

Special needs settlement planning in the context of personal injury/medical malpractice litigation should be used to ensure the injured party is able to qualify for or retain certain government benefits programs such as Supplemental Security Income (SSI), Medicaid, Medicare, and Section 8 housing subsidies. While the income benefits associated with SSI and the subsidized housing available through the Section 8 program are important and can help the client with disabilities meet daily expenses, the primary focus of special needs settlement planning is preservation of Medicaid and Medicare eligibility in order to ensure that the client has adequate medical care.

Critical Practice Tip: Many confuse Social Security Disability Insurance Benefits (SSDIB, a/k/a/ SSDI) with SSI (Supplemental Security Income) benefits because the cash payments may be somewhat alike and both checks come from the Social Security Administration. It is important to know precisely what benefits an injured party is receiving. You will want a copy of the award letter to verify this. If the only government benefits involved are Social Security Disability (SSDI) and Medicare, planning may still be necessary to preserve Medicare but SSDI does not have restrictions on unearned income and resources. On the other hand, planning may nevertheless be necessary to preserve Medicaid eligibility for the injured party.

Medicaid Programs in Connecticut

The Medicaid programs in Connecticut are complex and comprehensive. Medicaid is more than a medical insurance program for those in need. Medicaid is a program based on financial need. It is the safety net for many people who are disabled or elderly and in need of long term care services, either in a convalescent facility or in a home care setting. Medicaid is financed with state and federal money and is administered by the Connecticut Department of Social Services.

Under Medicaid or Title XIX of the Social Security Act, Connecticut also finances home and community care services under Waiver programs such as: the ABI-waiver (Acquired or Traumatic Brain Injury), the PCA-waiver (Personal Care Attendant), and the Home Care Waiver for Elders (age 65+).  These Waiver programs allow the individual to receive the care they need at home or in a community setting instead of receiving care in a convalescent home; these home care services are paid by Medicaid.

The value of the services in these programs varies, but it is not uncommon for a recipient to receive over $70,000 annually in services and medical care. These home care programs can provide over 40 hours a week in care services, and in some cases 24/7 home care services through a combination of companions, homemakers, and home health aides. Medicaid also covers such things as prescription drugs, hearing aids, and dental care.

Medicare does not provide these home care programs and services for long term care, but does provide hospice care and some very limited homecare benefits. And the Affordable Care Act does not offer these home care programs and services for long term care.


Medicaid has a major impact on the financing of long term health care. There are three primary issues for Medicaid eligibility, including the home care programs: assets, income and transfer of assets.

First let’s look at the asset rules. These programs have an asset limit of $1,600.00 for the applicant. Rules for the spouse are much different but will not be covered in detail here.

A. Assets

Not all assets are counted toward the asset limit.

  1. Some important assets may be retained by the applicant and/or the community spouse. The following assets are not counted for purposes of the assert limit of $1,600.00 for a single person:

    1. The home to which the applicant intends to return or in which the community spouse or certain family members are living. In 2013, the equity exemption is $802,000 if a spouse, a disabled, or a minor child do not occupy (less than 21yrs.) the home.

    2. An irrevocable, prepaid burial arrangement, $5,400; Effective Oct. 1, 2004, and an additional contract for burial space may be added. Burial space is defined as the casket, liner, or urn. Consult with your funeral director for these details.

    3. Furniture, household goods, and personal effects.

    4. One automobile; there is a limit of $4,500.00 equity value for a single applicant; there are exceptions to this rule. If there is a community spouse, then one car of any value is exempt, titled in the community spouse’s name.

    5. Life Insurance policy $1,500 face value or less, then the cash surrender value, if any, does not count toward the asset limit. If there is no cash surrender value, then the policy is exempt.

    6. Applicant’s money in a Special Needs Trusts.

  2. Assets that are counted toward the limits include: cash and all assets that can be converted to cash such as IRA’s, 401K’s, (or other retirement accounts) CDs, stocks, bonds, other investments, life insurance that has a cash surrender value, and real estate other than the home.

B. Income - Home care setting

There also is an income cap for the Medicaid home care program. In 2014, that amount will be $2,163.00 gross income, for the applicant only. If the income comes from social security, this usually means you have to add back in the Medicare premium of $104.90 per month to reach the gross income figure. If the applicant is over this income limit, a special needs trust can hold the excess income so the applicant still can qualify.

A spouse’s income does not count toward this limit and the Medicaid rules do not require that the income of the community spouse be spent on the applicant’s care. The income rules are significantly different if the applicant is in a convalescent home and the community spouse has a low monthly income. Counsel familiar with these rules should be consulted.

C. Transfer of Assets

There can be a significant period of Medicaid ineligibility for applicants and their spouses who have transferred assets without receiving full value for the assets, if the transfer took place on or after February 8, 2006. The new 5 year look-back period (a longer period for transfers into certain trusts), and the transfer of asset rules are just 2 of the major changes recently made to Medicaid rules. This is a highly technical rule and must be analyzed very carefully. New Connecticut statute in 2013: Connecticut’s nursing home may sue the giver of the gift or the recipient of the gift if this transfer caused a period of ineligibility and as a result the nursing home was not paid during this period of ineligibility.


There is a common misunderstanding that one must be impoverished in order to qualify for Medicaid (Title 19) or SSI (Supplemental Security Income). How can a person with disabilities receive or retain assets and income from a settlement, especially when they need medical or home care assistance through the Medicaid (T-19) waivers, such as: the ABI (Acquired Brain Injury) waiver; the PCA (personal care assistant) waiver; and the Medicaid Home Care waiver for persons 65 or better? The answer involves consideration of several factors.

The Law

In 1993, Congress made significant changes to the Social Security Act which has forever changed the potential quality of life for persons with disabilities. A person with a disability, as defined by the social security act, can have a special needs trust, hereinafter referred to as an SNT, to hold his or her assets (includes income) while preserving benefits eligibility. Fundamentally, there are 2 types of funding for these trusts: one is self-funded (it has payback provisions to the State) and the other is funded with other people’s money such as a parent (no payback to the State but it has residuary beneficiaries.)

This section discusses the self-funded SNT’s, as this is the type of SNT the injured party would have established in order to keep the settlement funds at the same time keeping these important government benefits.

Here’s how Congress made these exceptions for persons with disabilities; this federal law is sometimes called, OBRA ’93. In OBRA ’93, the d4 trusts, as they are commonly referred to, carved out certain exceptions for persons with disabilities; the exceptions fall into 3 categories:

  1. 42 U.S.C. §1396p(d)(4)(A): Trusts established for disabled persons under the age of sixty-five (65);

  2. 42 U.S.C. §1396p(d)(4)(B): Income assignment trusts, sometimes referred to as “Miller” trusts;

  3. 42 U.S.C. §1396p(d)(4)(C): Trusts established for disabled persons with a non-profit association as the trustee.
    (A pooled trust; PLAN of Connecticut, a not for profit trust organization, has a local Connecticut pooled trust: www.PLANofCT.org or 860-523-4951).

Under OBRA ‘93 each of these types of trusts is designed as a means of protecting the beneficiary’s assets and government benefits. The money, or other property in these trusts, is non-countable/unavailable to the beneficiary of the trust for Medicaid purposes and for some other programs such as SSI. (Supplemental Security Income, $721.00 monthly for 2014; this income is typically for people who has not been gainfully employed yet they are disabled).

The focus of this section is the 42 U.S.C. §1396p(d)(4)(A) and (C) special needs trusts, as well as the MSA-SNT. Congress provided that these irrevocable trusts for a disabled individual be established according to the following requirements:

(d)(4)(A) (under 65 years):

  1. The trust must contain assets of the disabled individual, i.e. self-funded, typically from savings, a personal injury settlement, inheritance, or divorce.

  2. The individual must be considered disabled according to criteria under the Federal Supplemental Security Income (“SSI”) program. Individuals receiving SSI or SSDI (Social Security Disability Insurance) would qualify.

  3. The trust must be established for the benefit of such individual by that individual’s parent, grandparent, legal guardian, or a court.

  4. The individual must be under the age of sixty-five (65) years.

  5. Upon the death of the individual, the state shall have the right to recoup from the remaining assets of the trust an amount equal to the Medicaid benefits that it had paid on behalf of the disabled party during his or her lifetime.

(d)(4)(C) (any age):

A trust containing the assets of an individual, any age, who is disabled (as defined in section 1614(a)(3)) that meets the following conditions:

  1. The trust is established and managed by a non-profit association.

  2. A separate account is maintained for each Beneficiary of the trust, but, for purposes of  investment and management of funds, the trust pools these accounts.

  3. Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614 (a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (my emphasis)

  4. To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title.

How Does One of These Trusts Work?

There are 3 parties to one of these discretionary trusts: 1) the person who establishes the trust, also referred to as a settlor; 2) the trustee who determines what distributions can be made from the trust and is responsible for the overall management of the trust; and, 3) the beneficiary who is the person with disabilities:

The Settlor:

The (d)(4)(A) trust can be established by a parent, grandparent, legal guardian or court, whereas a (d)(4)(C) trust can be established by these same parties or by the individual. Once the trust is established, the settlor plays little or no role in the trust unless the settlor also happens to be the trustee, which is permitted but not encouraged. However, under no circumstances can the beneficiary be the trustee because this would make the assets countable for purposes of the government benefits. If the beneficiary is a conserved person or someone under a guardianship, the Probate Court must authorize the conservator or guardian to establish and fund the trust.

Critical Practice Tip: If a court petition is required, to establish and fund the SNT, the process can take weeks. Thus, it is important for personal injury attorneys to engage special needs planning attorneys as early as possible so the trust can be established in a timely manner.

The Trustee:

A trustee must be identified in the trust document. This might be a bank, a law firm’s trust department, or a non-profit entity. Sometimes a trusted family member may serve as a co-trustee. If the beneficiary is a minor child, usually a parent identifies a person to serve as a trustee.  The trustee typically has the sole, absolute and uncontrolled discretion regarding any distribution from the trust.  The trustee can consult with the beneficiary and the family or friends of the beneficiary to help determine what distributions are needed.  If Probate Court action was required to establish and fund the trust, then the trustee will likely need to be bonded and accountings will be required.

The Beneficiary (injured party):

The beneficiary of the trust is the person with disabilities.  The assets in the trust must be used for the sole benefit of this person. The assets can be used for such things as supplemental therapy, field trips, vacations, dental care (not covered by Medicaid, for example), taxes, mortgage, and so forth depending on which government benefits are retained.  The assets are not to be used for items which are covered by benefits.  For example, if Medicaid pays 100% for prescription drugs, the trustee should not use trust money for this purpose.

Special needs trusts are powerful tools to help your injured party benefit from the settlement and at the same time receive care though the Medicaid waiver programs.

What if a Medicare Set-Aside (“MSA”) is Needed?

An MSA is an amount of money set aside from the settlement to pay for future medical expenses that would normally be covered by Medicare and that are a result of the accident.  For example, your client suffers serious back injuries as a result of an accident and is a current recipient of or will be a recipient of Medicare within 30 months.  This same client also has diabetes. MSA set-aside money would pay for future medical expenses normally covered by Medicare and that were accident related. The future treatment for the back injuries would be paid out of the MSA but the diabetes treatment would still be paid by Medicare because this condition was not accident related. Arguably, the Medicare Secondary Payor Act is the basis for MSA’s, as the assertion is that Medicare is secondary to the primary payor, typically an insurer.

MSA’s can pose problems for injured parties who may also need to preserve eligibility for Medicaid or SSI. MSA’s are not subject to any special treatment under Medicaid income and asset rules. Because Medicare set-aside trusts, custodial agreements, and self-administered arrangements are all funded with property belonging to the injured party, each will be subject to SSI and Medicaid restrictions applicable to self-settled trusts.

In Connecticut, funds held in MSAs are considered available resources for purposes of determining Medicaid or SSI eligibility.  The funding of such arrangements will be treated as transfers without fair consideration, resulting in the imposition of a period of ineligibility, unless the MSA also meets the Medicaid special needs trust rules.[iii]

If the injured party must preserve Medicaid or SSI eligibility, a formal Medicare set-aside trust must be created that also complies with the Medicaid or SSI criteria applicable to a first party SNT—in other words, a Medicare set-aside SNT. There are two types of SNTs that can be used in the case where the client is also on needs-based benefits, such as SSI or Medicaid, or is expected to require needs-based government benefits in the future. These two options are a Special Needs Trust, (d)(4)(A) and a pooled Special Needs Trust, (d)(4)(C), both types outlined in the section on Special Needs Trusts . However, the pooled trust in Connecticut, PLAN of Connecticut, has declined to be the trustee in these complex MSA-SNT vehicles thus persons age 65+ may not have the same advantages as the injured party under age 65.[iv]

Who Can Help Me with a Special Needs Settlement Planning and Special Needs Trusts Work?

In order to create a special needs trust that protects assets and does not jeopardize benefits, it is very important to get good advice, usually from an attorney who specializes in this area of law.  Special needs planning requires an attorney with special knowledge.

Sharon L. Pope, Law Offices of Sharon Pope, Hartford


[i] See addendum for a screening checklist.

[ii] Grillo v Pettiete, et al, 96-145090-92, 96th District Court, Tarrant County, Texas. Although this 2001 confidential  settlement became public due to a filing error, it has been  well publicized  by structured settlement providers for the fact that the original personal injury firm failed to recommend a structured settlement, among other allegations of legal malpractice. In the original medical malpractice suit, settled for $2.5 million, Christina Grillo, a minor, was also receiving Medicaid benefits and a special needs trust would have preserved those benefits.  This Medicaid benefit was essential to her care.  Christina was born with cerebral palsy, cortical blindness, suffered quadriplegia, and several other medical problems.  The severity or her injuries coupled with the fact she was a minor called for careful post-settlement planning.

Her funds were dissipated and for a variety of reasons including the lack of financial planning  which includes a discussion of structured settlements, tax consequences, and future medical insurance coverage. The Grillo case was settled for $1.6 million from the law firm and $2.5 million from Christina’s guardian ad litem.

[iii] 1 CMS Memorandum (July 1, 2005) Q1

[iv] Clients age 65 or better who need an MSA and need to retain government benefits will need special counseling on how to satisfy both requirements. The only type of Special Needs Trust a person age 65 or better can have is a pooled Special Needs Trust. This may require looking outside of Connecticut for a pooled trustee to manage the MSA-SNT.



Maximizing Your Client’s Award

Understanding your client’s current or potential eligibility for public benefits is essential. The benefits can be critical to your client’s future good quality of life for which you have been fighting.


So, well before your client signs on the dotted line, you should screen for the following benefits:


_____  Social Security Disability Insurance (SSDI)

_____  Social Security Income (SSI)*

_____  Social Security Retirement income

_____  Medicare (medical insurance)

_____  HUD housing, Section 8*

_____  Food Stamps*

_____  Veteran’s benefits


_____  Medicaid (Title XIX) medical insurance*

_____  Subsidized housing*

_____  Energy Assistance*

_____  Cash Assistance*

* These are all needs based government benefits meaning there is either an asset limit or an income limit or both.  Some of these benefits are financed jointly by the Federal and State governments.  Most are administered at the State level. In Connecticut, the Department of Social Services administers many of these programs, including Medicaid.