A (d)(4)(a) Special Needs Trust is a trust created for the benefit of a disabled individual under 65. The trust must be funded with the disabled individual’s assets. It enables the trust beneficiary to continue receiving public assistance benefits without regard to the trust property. This is because (1) the beneficiary has no control over the money in the trust and (2) the trust includes a payback provision to the state at the beneficiary’s death (up to an amount equal to the government benefits paid on his/her behalf).
Recently, Timothy Robbins (42 years old) received a $17 million settlement agreement for permanent personal injuries sustained when a semi truck sideswiped his vehicle. Timothy was in a coma for many weeks and eventually transferred to a nursing home where he will likely remain the rest of his life. His father, Shelly Robbins, was appointed guardian of his estate.
During litigation, Timothy was receiving Medicaid and Supplemental Security Income. At the settlement agreement, Shelly asked that the trial court transfer the balance of the settlement (after fees and a Medicaid lien) to a (d)(4)(a) Special Needs Trust. The trial court disapproved because it stated that such a transfer would create a “legal fiction of impoverishment.” It ordered that only $1 million be transferred to the Trust and the remainder to Timothy’s estate.
Shelly appealed. The Indiana Court of Appeals reversed and remanded with instructions that the total amount of available settlement proceeds be transferred to the Trust. The court pointed out that both federal and state law allow this “legal fiction of impoverishment” to exist by placing assets into a Special Needs Trust. The State recognizes that while this provision has the potential to shift expenses to the taxpayer, the remaining funds of the Trust will be paid back to the State. The appellate court reprimanded the trial court for exceeding the scope of its authority based solely on its disagreement with the policy.
This ruling affirms the legislation in place for (d)(4)(a) Special Needs Trusts and makes it clear that any of the beneficiary’s assets can go in the Trust, including personal injury settlements.
Source: NAELA