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THE INTERPLAY BETWEEN TORT RECOVERIES
AND
PUBLIC BENEFITS
By Thomas D.
Begley, Jr.
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 and Disability 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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