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THE
INTERPLAY BETWEEN TORT RECOVERIES
AND PUBLIC BENEFITS
According to a recent issue of Lawyers Weekly U.S.A., personal injury lawyers
for Plaintiffs are being sued for malpractice by clients who are losing Medicaid
because the recovery was not placed into a Supplemental Needs Trust. This
trend indicates that personal injury attorneys do not complete their role as
advocates upon obtaining a successful judgment or settlement. If they
represent a disabled individual, they should recommend a Trust for the receipt
of litigation proceeds.
To avoid this potential pitfall, a
personal injury attorney should retain an attorney, who has expertise in this
area, to prepare a Special Needs Trust (SNT). To properly meet the needs
of the Plaintiff, the personal injury attorney should expect this attorney not
only to prepare the Trust, but to ascertain and possibly compromise any
potential claims, or liens which Medicaid or Medicare may have against the
recovery. Moreover, the trust attorney should also be expected to consult
with the personal injury attorney and the Plaintiff (as well as the Plaintiff's
family, if necessary) prior to establishment of the Trust to ascertain the needs
of the disabled individual and subsequent to its implementation to ensure that
the trustee of the funds understands how to utilize the Trust.
When an injured party receives money
as a result of a tort action, the settlement or award may jeopardize his or her
public benefits. In 1993, Congress enacted the OMNIBUS Budget
Reconciliation Act of 1993 (OBRA93). Very often, injured parties are
receiving public benefits such as SSI, which automatically carries with it
medical assistance in the form of Medicaid. For many tort victims Medicaid
is the only form of medical insurance that they will ever be able to obtain.
The question is "how can the tort victim enjoy the benefits of the recovery
while at the same time not losing vital public benefits?".
The solution to this problem is the
use of a special needs trust authorized under OBRA-93. These trusts are
extremely complex and involve sophisticated issues relating to trust law, public
benefits law and tax law. A poorly-drafted trust may expose the
beneficiary and others to unnecessary taxation or disqualify them from public
benefits. For this reason, personal injury attorneys often work with
specialists from the field of elder law or estate planning who are familiar with
all of the ramifications of these documents.
These trusts are also known as
Payback Trusts. The requirements are as follows:
1. The trust must funded with assets
of the individual.
2. The individual must be under 65
years of age at the time the trust is funded.
3. The individual must be disabled.
4. The trust must be established by a
parent, grandparent, legal guardian of the individual or a court.
5. Any state which paid medical
assistance on behalf of the individual must be reimbursed from any amounts
remaining in the trust upon the death of the individual.
6. Reimbursement must be up to an
amount equal to the total medical assistance paid on behalf of the individual.
The definition of disability for
(d)(4)(A) Trusts is the same definition contained in the Social Security Act
which is applied for determining eligibility for SSI or SSD. The Social
Security Act provides "an individual shall be considered to be disabled for
purposes of this subchapter if he is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve months (or, in the case
of a child under the age of 18, if he suffers from any medically determinable
physical or mental impairment of comparable severity.)"
Persons over the age of 65 may avail
themselves of the use of pooled trusts, which are established by a non-profit
association. These trusts are outside the scope of this paper.
As a practical matter, the Payback Trust cannot easily be established by the
injured person's grandparent or
parent in a
personal injury setting, because neither the parent nor grandparent are owners
of the settlement proceeds. It is easy for a guardian to establish the
trust, and it is very common for the court to sign the trust document. If
a person is physically disabled but mentally competent, settlement can be
achieved without court approval. However, courts are usually willing to
exercise jurisdiction for purposes of establishing a special needs trust.
Counsel represents to the court that court action is needed so that the parties
can reach a compromise.
. 42 U.S.C.
'1396(p)(d)4(A)
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