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By Guest Author, Evelynn Passino, J.D. – Executive Director of Settlement Solutions National Pooled Trust

If your client has public benefits, you have probably identified that there could be injury-related liens which must be addressed, or the need for a Medicare Set-Aside, but that is not where the inquiry ends. Closing out a personal injury case ethically and compliantly includes an analysis of the client’s benefits eligibility. This article will cover five things you should know if your client has public benefits that are needs-based such as SSI and/or Medicaid.

  1. You have a responsibility to educate your client on preservation options.

Not advising your client that funds received at settlement could negatively impact their eligibility for public benefits, and what their options are to protect those benefits, could give rise to a legal malpractice case. A case which clearly illustrates this duty is Grillo v. Petiete et al., 96-145090-92 (96th Dist. Ct., Tarrant Cty., Texas). In this case, a lump sum of $2.5 million was placed into a court registry instead of using a structured settlement. The result was much less money for the client’s care, taxation which could have been avoided, and she lost eligibility for Medicare and Medicaid. This left the family with the burden of paying for care without an adequate source of funding. The attorneys and guardian ad litem, in a much-publicized settlement, paid out over $4 million in damages.

This does not mean it is your duty to personally advise the client. Once the issue has been identified, you may retain or connect the client with experts, such as elder law or special needs law attorneys, qualified settlement planners or non-profits which operate pooled trusts, who can help your client understand his or her options to keep their benefits intact.

  1. Your client does not have to protect their benefits.

While it may not be in their best interest to do so, a person is never required to maintain eligibility for any public benefit. Assuming they are not incapacitated, a person can choose to forgo their benefits and receive their settlement recovery outright. The important part is that they understand they have the option to preserve benefits and what actions they would need to take to do so. Whatever the client decides, but especially if they have decided to lose their benefits, it is important to document the advice provided and the resulting client’s decision. It is also advisable to have the client sign an acknowledgement/waiver documenting that the client is making this choice despite being advised otherwise.

Another case, French v. Glorioso, 94 S.W.3d 739 (Tex. App. 2002), demonstrates what the attorney’s duty is. In Glorioso, the client’s recovery remained in the attorney’s trust account for over a year. The client was not Medicaid-eligible at the case’s inception but became eligible prior to settlement. After losing Medicaid eligibility, the client filed suit against her attorney for not advising her about a special needs trust (SNT); however, the attorney was able to prove that he had properly advised her regarding the need for an SNT and that she had declined. Ultimately, he was not liable for malpractice, but the threat of exposure is one worth protecting against by documenting your file.

Keep in mind that whatever your client chooses, they likely need to report it to the agency which administers their benefits. People with means-tested benefits have an ongoing responsibility to update the government regarding their financial eligibility. If the client decides to take the money outright, then they need to report a “change in circumstances” regarding the additional income. If they decide to protect their eligibility, such as establishing an SNT, the trust’s creation needs to be reported. What they cannot do is fail to report, or worse, falsify a report to a government agency regarding the funds. Committing Social Security fraud can come with hefty penalties.[1]

  1. Not all benefits need to be protected.

Some government benefits are known as “entitlement” benefits. These benefits are so named because once the individual qualifies, they are entitled to the benefit regardless of financial circumstances. Entitlement benefits include Medicare, Social Security Disability Insurance (SSDI), Social Security Retirement, Childhood Disability Benefits (CDB), Disabled Adult Child (DAC) benefits, and some benefits provided by the Veterans Administration. Some Medicaid programs are not means-tested, or only consider the individual’s income, but not their assets. Generally, government benefit programs consider money to be income in the month it is received. Any of that money that is kept into the following month becomes an asset. Therefore, if the benefit is not asset-sensitive but is income sensitive, then the client only needs to worry about the month of receipt, during which there may be a different rule that excludes the money, or the client may be able to self-support with the money received from their settlement. Finally, some benefits, such as those provided by the U.S. Department of Housing and Development (HUD), do not count lump sum insurance payments at all.[2]

It is important to understand not just what kind of benefits your client has but also what the eligibility requirements are. If you are not sure, then consulting with an expert who understands these benefits is a must. If the client has no benefits that will count the settlement recovery as a resource, then planning strategies such as a special needs trust may not be necessary. There may be other reasons for such planning, like that the client is not capable of managing his or her own money, but there are less restrictive options available for those kinds of situations.  If the client might need needs-based benefits in the future then planning for that possibility is important too.

  1. Your client might not know what benefits they have.

Government benefits programs are confusing and many of them sound the same (Medicare, Medicaid, Medi-Cal, SSI, SSDI, etc.), so it is no wonder many people have trouble keeping them straight. People often apply for these benefits in times of crisis, so they do not necessarily care what the benefit is or how it works, they just know they are getting something. As you can see above, however, knowing the difference matters. Not using a special needs trust when one is needed can cause the client to lose benefits they desperately need. Using a special needs trust when one is not needed can lock the client into a lifetime of rules and request-making, in addition to the Medicaid payback provision that will apply when they die, which may require the entire trust balance to go to the government.

Rather than rely on your client to know, ask them for copies of their benefit cards and award letters, if they have them. If they do not, then new copies can be requested. The Social Security Administration provides an option for clients to do this through an online portal. Medicaid benefits can be verified through the agency which administers them, sometimes over the phone.

  1. To preserve benefits, one size does not fit all.

Assuming your client has benefits which need to be preserved, you should not assume the method that works for one client will work for another. A popular option is special needs trusts because they allow the client to have access to funds long-term and remain qualified for benefits; however, the client will be giving up control over the money in the trust. While there are options for changing trustee if the beneficiary does not get along with them, the rules and restrictiveness of special needs trusts is similar across the board. The Medicaid payback provision is federally mandated, so it will apply to all first-party special needs trusts. If your client decides to use a special needs trust, they must decide on what kind of SNT to use. They could have their own personal, customized standalone trust drafted from scratch, or they could join an existing pooled trust. Both have their benefits and drawbacks. There are also options outside of special needs trusts, including spend down plans, ABLE accounts, and some kinds of annuities. Helping your client choose the best option for them will depend on how much money they are receiving, what their future plans/needs are, how old they are, family dynamics, etc. This decision deserves time and serious consideration (guided by expert advice) because it is as personal and important as any decision that was made in the case thus far. Make sure your client has what they need to take that first step into their post-settlement life.

[1] https://oig.ssa.gov/newsroom/blog/2012/08/pricey-penalties-social-security-fraud

[2] HUD Occupancy Handbook, Exhibit 5-2, A.9.

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