Why you should care about supplemental needs trusts for your settlement
A Supplemental Needs Trust is available only to applicants under the age of 65 with severe disabilities as defined by statute. In order to further Medicaid's purpose of providing medical assistance to needy persons, the State agrees to continue paying Medicaid costs--in instances where it would otherwise be relieved of this obligation--in exchange for the possibility of reimbursement upon the beneficiary's death.
The continued right to Medicaid insurance is primarily through the receipt of Supplemental Security Income ("SSI") disability benefits. Generally speaking, if you lose Supplemental Security Income, you lose Medicaid coverage. If you are eligible for Supplemental Security Income, you are automatically eligible for Medicaid.
A Supplemental Needs Trust is defined by federal law (42 U.S.C. section 1396p(d)(4)(A)) as: "a trust containing the assets of an individual under age 65 who is disabled...and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court [and which provides that] the State will receive amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual". The money placed in a Supplemental Needs Trust does not have an impact on Medicaid eligibility.
The Supplemental Needs Trust is designed to preserve future access to Supplemental Security Income and Medicaid after after you receive a substantial settlement. For purposes of maintaining Supplemental Security Income and Medicaid, the beneficiary must not have direct control of the funds. The trustee of the Supplemental Needs Trust must be directed to maximize the benefit of the trust where appropriate, paying for only those items for which the beneficiary is not otherwise eligible from government benefit programs, such as SSI, Medicaid, group homes, nursing homes, etc. The trust is irrevocable and cannot be changed or rescinded at a later date.
The purpose of a Supplemental Needs Trust is to retain Medicaid, and use trust funds to meet the supplemental or "special" needs of the beneficiary. These can be quite broad and include non-medical items and generally pay expenses that are not "food, clothing and shelter" whch are part of the SSI disability benefit payment. In some cases, monthly mortgage payments can be made from the Supplemental Needs Trust.
The good thing about the Supplemental Needs Trust is that the family can use or not use Medicaid on a case-by-case basis. If you want to go to a particular medical specialist who does not accept Medicaid, the Supplemental Needs Trust can pay him as the family otherwise would if there was no Supplemental Needs Trust).
The main disdvantage of establishing a Supplemental Needs Trust is that the individual cannot have unrestricted use of the money to spend willy-nilly at a rapid rate. Further, under federal and state law, the State holds a "remainder interest" in all amounts remaining in the trust "up to an amount equal to the total medical assistance paid" (42 U.S.C. section 1396p(d)(4)(A), on behalf of the trust's beneficiary. When a Supplemental Needs Trust is established, the beneficiary gives the State a right to recover the total Medicaid paid on behalf of the recipient. If assets are available, the State may recover the total amount of benefits paid throughout the beneficiary's lifetime.
Benefits received under the Social Security Disability insurance are like any insurance payment and they are not income or resource sensitive. You do not need a Supplemental Needs Trust to protect Social Security Disability benefits and Medicare (as opposed to Medicaid) insurance that follows disability insurance benefits.
A Supplemental Needs Trust is a good option for disabled persons who are reliant on Medicaid and SSI for medical expenses, food and shelter. Even with a substantial settlement (i.e., exceeding $1 million), you can retain your eligibility for Medicaid and SSI disability payments by establishing a Supplemental Needs Trust.