How do I Manage a Personal Injury Settlement for a Disabled Child?

Many children with disabilities rely on Supplemental Security Income (SSI) and Medicaid benefits to provide for their everyday health care and basic necessities.  But these benefits are means-tested – that is, a child only qualifies if he or she has limited assets and income.

So what happens when your disabled son or daughter suffers a personal injury and receives a financial settlement?   That personal injury settlement can make life much easier for you and your child, but it can also cause devastating problems if it disqualifies your child from government benefits.

Without careful planning by an experienced special needs attorney, your child’s benefits may be in jeopardy.  At their core, government programs cover only life’s basic necessities.  But they don’t provide long-term financial security, so you must strike a balance between continuing to receive government benefits and accepting a personal injury settlement.

That balance involves three main options:  (1) give up your child’s government SSI and Medicaid benefits; (2) legally “spend down” the financial award; or (3) set up what is commonly called a “special needs trust” for the benefit of your child.

Of course, the first option – giving up your child’s benefits – is not ideal.  This is especially true if your child has significant medical expenses that are covered by Medicaid.  That leaves either spending down the financial award or making use of a special needs trust.

The concept of spending down assets is simple.  You accept the financial award, put it in the bank, and then spend it on expenses or assets that are allowed.  For example, you can spend money on additional medical expenses not covered by Medicaid, or on education, personal property (clothes, medical equipment, cell phone, computer, iPad, etc.), or even on a specially made vehicle to allow your child’s transportation.  Depending on your child’s age and abilities, you may even consider purchasing a home for your child.  Spending down is usually best suited to situations where your child has received a smaller personal injury settlement or award, because it is generally difficult to spend down significant amounts in a short period of time.

The final option is a special needs trust.  A special needs trust is a discretionary trust set up specifically for the benefit of a disabled person. This is a type of trust that supplements government benefits, and therefore it is also referred to as a “supplemental needs trust.” Special needs trusts may provide money for nearly any cost beyond food, shelter, clothing, and health care without affecting disability programs or government benefits. Some of the things that special needs trusts pay for include internet, furniture, education, transportation, and even vacations.  There are different types of special needs trusts, with the most common being a stand-alone special needs trust and a pooled special needs trust.

A stand-alone trust has one beneficiary while a pooled trust has many beneficiaries’ assets pooled together.  Special needs trusts are not “one-size-fits-all”.  Each type of trust has its own advantages and disadvantages, but in each case when a beneficiary dies the trust must repay Medicaid before anything may be distributed to the remainder beneficiaries.

Receiving a personal injury settlement can be an important occasion in your child’s life.  With the help of a Michigan special needs attorney you will be able to decide the best way to handle that settlement and maintain the government programs that are critical to your child’s growth and well-being.

Thanks to our friends and contributors from Glenn R. Matecun for their insight into special needs trusts after personal injury settlement.