How a Special Needs Trust Can Protect Your Personal Injury Settlement and Medicaid Eligibility

When someone with a disability receives a personal injury settlement, it can feel like a financial lifeline, providing compensation for pain, suffering, and future care needs. But there’s an often-overlooked risk: receiving a large settlement can jeopardize eligibility for critical public benefits like Medicaid and Supplemental Security Income (SSI). These programs have strict asset limits, and exceeding those limits, even unintentionally, can result in losing essential healthcare coverage and monthly income assistance.

Fortunately, a Special Needs Trust (SNT) can protect both the settlement funds and the individual’s continued access to Medicaid and other means-tested benefits. At Shalloway & Shalloway, P.A., we help families in West Palm Beach navigate this complex intersection of personal injury law, estate planning, and public benefits. Here’s how a Special Needs Trust works and why it’s so important if you or your loved one is receiving a personal injury settlement while relying on Medicaid. For help creating an SNT or to further discuss whether one is right for you, contact our office to speak with a skilled and compassionate West Palm Beach Medicaid planning attorney and special needs trust lawyer.

Why a Settlement Can Create a Problem

Programs like Medicaid and SSI are “needs-based,” meaning recipients must meet strict financial limits to qualify. In Florida, a single Medicaid applicant cannot have more than $2,000 in countable assets. A personal injury settlement, even if it’s needed for ongoing care, counts as an asset for eligibility purposes. If you receive the settlement directly, the sudden influx of money can push you over the limit and cause you to lose Medicaid coverage or SSI payments.

Without Medicaid, you could lose access to affordable healthcare, home health services, or long-term care coverage. And regaining eligibility isn’t always simple. Once your assets exceed the threshold, you must either spend them down or place them into a legally acceptable structure to protect your benefits.

The Role of a Special Needs Trust

A Special Needs Trust (SNT) is specifically designed to hold assets for a person with a disability without disqualifying them from needs-based benefits. Funds in a properly established SNT are not considered countable assets for Medicaid or SSI purposes. This allows the beneficiary to continue receiving public assistance while also benefiting from the settlement funds.

The trust can pay for a wide range of goods and services that improve the beneficiary’s quality of life but are not covered by Medicaid or SSI. This includes things like:

• Medical equipment not provided by Medicaid
• Home modifications
• Educational expenses
• Personal care attendants
• Recreational activities
• Travel and transportation

It’s important to note that the trust cannot make cash distributions directly to the beneficiary. Doing so could reduce or eliminate their public benefits. Instead, the trustee uses the funds to purchase goods and services for the beneficiary’s benefit.

Types of Special Needs Trusts

There are two primary types of Special Needs Trusts commonly used to protect personal injury settlements:

1. First-Party Special Needs Trust:
   This type of trust is funded with the beneficiary’s own assets, typically the personal injury settlement. It must meet specific federal and state requirements. The beneficiary must be under age 65 when the trust is created, and the trust must include a provision that allows Medicaid to recover costs from any remaining funds upon the beneficiary’s death. Despite the payback requirement, a first-party SNT is often the best option to preserve both the settlement and Medicaid eligibility.

2. Third-Party Special Needs Trust:
   This type of trust is funded with assets that do not belong to the beneficiary, such as gifts from family members. It is often used in estate planning but is generally not applicable to personal injury settlements since the settlement proceeds belong to the beneficiary.

In some cases, a pooled trust—a type of first-party trust managed by a nonprofit organization—may be a suitable alternative. Pooled trusts can offer lower costs and professional management, especially for smaller settlements.

Timing Is Critical

One of the most important aspects of using a Special Needs Trust in connection with a personal injury settlement is timing. The trust must be properly established before the beneficiary receives the settlement funds. If the settlement is deposited into the beneficiary’s personal bank account, even temporarily, it could immediately disqualify them from Medicaid.

This is why personal injury attorneys, settlement planners, and elder law attorneys should work closely together as soon as it becomes clear that a settlement is likely. Waiting until after the funds are distributed can lead to unintended consequences that may not be easily reversible.

Protecting the Settlement, the Benefits, and the Future

Using a Special Needs Trust doesn’t just preserve Medicaid eligibility; it allows the settlement to fulfill its intended purpose of providing additional care, comfort, and security for the injured person over the long term. Without the trust, the settlement could quickly be spent down on medical expenses that Medicaid would otherwise have covered, leaving the individual without sufficient resources in the future.

A Special Needs Trust also offers the advantage of professional management. A carefully chosen trustee—whether a family member, professional, or nonprofit organization—will ensure the funds are used appropriately and in compliance with complex Medicaid and SSI rules.

Work with an Experienced West Palm Beach Special Needs Trust Attorney

Navigating the technical requirements of Medicaid, personal injury settlements, and Special Needs Trusts can be overwhelming, especially when families are already coping with the emotional and physical challenges of a disability. At Shalloway & Shalloway, P.A., we specialize in Medicaid planning, elder law, and Special Needs Trusts. We work closely with personal injury attorneys and families to ensure that settlement funds are protected and that the beneficiary’s Medicaid eligibility remains intact.

If you or your loved one is receiving a personal injury settlement and needs public benefits like Medicaid to cover long-term care or medical expenses, contact us today. With thoughtful planning, we can help you safeguard your settlement—and your future.