Special Needs Trusts and Structured Settlements

Structured settlements and special needs trusts are designed to provide financial security and peace of mind for individuals with disabilities. While they serve different purposes, when used together strategically, they can help protect assets, preserve eligibility for government benefits and help ensure you have money for future medical needs and living expenses.

What are structured settlements?

Structured settlements are financial agreements. They’re often used to resolve legal claims, particularly personal injury payouts. Instead of receiving a one-time lump sum, the plaintiff agrees to receive payments over a certain period. These payments can be tailored to meet the specific needs of the individual, covering expenses such as medical bills, lost income or ongoing care.

Structured settlements offer several benefits: you’ll receive stable fixed income and tax advantages, without having to manage a large lump sum. However, there’s no guarantee that the fixed payments and interest rates will keep up with inflation and the cost of living. Furthermore, you won’t be able to withdraw a larger sum for unexpected costs.

What are special needs trusts?

A special needs trust (also known as a supplemental needs trust) is a legal tool designed to manage assets for the benefit of a person with disabilities without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). These trusts are typically set up by a caregiver and can receive funds from various sources, including personal injury settlements.

Special needs trusts are irrevocable and are administered by a trustee who manages the assets on behalf of the beneficiary. The trust funds can be used to supplement government benefits and cover expenses not covered by those programs.

How special needs trusts and structured settlements can work together

When used together, structured settlements and special needs trusts can provide financial security and asset protection. Structured settlements can provide a reliable source of income to fund a special needs trust, so that funds are available for the beneficiary's care and support throughout their lifetime.

Furthermore, the funds held in a properly drafted special needs trust do not count as resources or income for purposes of means-tested government benefits such as Medicaid and SSI. By structuring payments into a special needs trust, people can preserve their eligibility for these vital programs while still receiving financial support.

However, it’s important to work with an estate planning firm like James Bart Leonardi, LLC. Estate planning attorneys can make sure that the trust is drafted correctly to comply with legal requirements and maximize its benefits for the beneficiary. To learn more about whether a special needs trust may be right for your structured settlement, call today.

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