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)^[i].  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.)"^[ii]

Persons over the age of 65 may avail themselves of the use of pooled trusts, which are established by a non-profit association.^[iii]  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.