Structured Settlements and Special Needs Trusts: A Synergistic Approach

Understanding the interplay between structured settlements and special needs trusts is essential, especially for individuals with disabilities. It’s also important to note that except in California, a commutation rider is necessary in all states. This allows the state to reclaim funds from your trust after your death to offset taxpayer money provided during your lifetime.

Understanding Structured Settlements

A structured settlement is when you receive periodic payments over time instead of a lump sum after winning a lawsuit. Common in personal injury cases, it aims to provide long-term financial security. Funded by an annuity, these payments create guaranteed income for the life of the trust beneficiary. The commutation rider ensures future payments can be converted back to the trust to assist in state lien recovery.

The Role of a Special Needs Trust

A Special Needs Trust (SNT) helps a person with disabilities keep eligibility for government benefits like Medicaid or SSI. Assets in an SNT aren’t counted against program limits. An SNT covers extra expenses that improve quality of life without risking public assistance disqualification. Keep in mind there are several types of Special Needs Trusts. If an individual is age 65 or older you are required to use a non-profit association or non-profit charitable trustee like CPT Institute.

Combining Structured Settlements and Special Needs Trusts

When a structured settlement pays into a special needs trust, beneficiaries get the best of both worlds. The structured settlement offers consistent income, managed by the trust to meet immediate and future needs while keeping government benefit eligibility intact.

This setup maximizes fund usage. Government benefits cover basic costs, while the trust handles additional services like specialized therapy and personal care, enhancing the beneficiary’s life.

What’s a Commutation Rider?

Required in 49 states, a commutation rider lets part of the future payments be paid out as a lump sum if certain events occur, such as the beneficiary’s death. This ensures the structured settlement’s remaining value can be quickly liquidated and added to the trust, aiding in state lien repayment.

Conclusion

For those with special needs, combining structured settlements with special needs trusts creates a solid financial plan. It provides stability and preserves eligibility for crucial government benefits. The commutation rider secures the state’s interest in the trust after the beneficiary’s death. Understanding these components helps families make choices that protect their financial well-being.