Special Needs Trust Funding with Structured Settlements

 

English Alt Text: A four-panel comic explains funding a Special Needs Trust with structured settlements. Panel 1: A lawyer tells a woman this method is beneficial. Panel 2: The woman worries a lump sum could endanger her son's benefits. Panel 3: She learns periodic payments into the SNT are an option. Panel 4: The lawyer assures her this keeps benefits intact.

Special Needs Trust Funding with Structured Settlements

For individuals with disabilities, receiving a financial settlement from a lawsuit or insurance claim can be both a blessing and a burden.

Large lump sums can disqualify them from essential government benefits like Medicaid or Supplemental Security Income (SSI).

However, by combining a Special Needs Trust (SNT) with a structured settlement, families can ensure long-term support without compromising eligibility for public programs.

πŸ“Œ Table of Contents

πŸ” What Is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal tool that allows individuals with disabilities to receive financial support without affecting their eligibility for means-tested government benefits.

There are three main types:

- First-Party SNT: Funded with the beneficiary’s own assets (e.g. lawsuit settlement)

- Third-Party SNT: Funded by family or others

- Pooled SNT: Managed by nonprofit organizations with combined assets from multiple beneficiaries

πŸ“ˆ Why Use Structured Settlements?

Structured settlements provide regular, tax-free payments over time instead of a single lump sum.

This steady flow of income can help manage finances more effectively and avoid rapid depletion of funds.

In SNT planning, they offer the following benefits:

- Reduce the risk of sudden disqualification from public assistance

- Provide predictable, long-term funding for supplemental care and services

- Minimize financial mismanagement by the beneficiary

πŸ’΅ How to Fund an SNT with Structured Settlements

To properly fund an SNT using a structured settlement:

1. Work with an attorney to create a compliant SNT document

2. Coordinate with a structured settlement broker and annuity provider

3. Direct the annuity payments into the trust, not the beneficiary’s personal account

4. Confirm the trust is irrevocable and meets state/federal regulations

5. Ensure coordination with Medicare Set-Aside (MSA) accounts if needed

⚠️ Avoiding Government Benefit Disqualification

If a settlement is paid directly to the individual with disabilities, it may disqualify them from Medicaid or SSI.

By routing funds through an SNT, the settlement avoids being counted as a personal resource.

Structured payments further reduce administrative burden and help the trust manage disbursements efficiently.

Funding SNTs with structured settlements involves multiple professionals:

- Special Needs Attorneys: Draft and review trust compliance

- Settlement Planners: Structure annuity contracts and coordinate payment flow

- Trust Administrators: Ensure disbursements align with SSI/Medicaid rules

It’s crucial to ensure the trust pays only for items not covered by government programs (e.g. therapy, education, travel).

πŸ”— Further Resources

Explore these valuable resources for trust planning and structured settlement guidance:

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