Warn the Family About Gifts to The Injured Plaintiff

woman in wheelchairBy Anne R. Moses.

When you represent an injured plaintiff, thinking about estate planning of family members is probably not on your mind, but it should be. If your plaintiff is going to qualify for Supplemental Security Income (SSI) and Medicaid, now or down the road, you need to have the family be aware of what can destroy the Plaintiff’s eligibility.

Spouses, grand parents, siblings, aunts, uncles and friends often want to help provide for the plaintiff and often revise their Wills to provide outright monetary gifts to the injured person, or they may establish a trust for his/her benefit. You should warn the family and have them warn friends that they will be doing damage to the plaintiff’s right to government benefits unless they provide for gifts in the correct way.

Eligibility for SSI and Medicaid is predicated on need. Outright gifts are treated as gifts of income in the month received. In 2016 an individual cannot receive more than $733 in income in a month. If anything is left, the balance is treated as a resource. Because the resource can be used to support the individual, he or she will be ineligible to receive benefits until the balance is spent. A new application must then be made for benefits. Depending on the amount involved this can result in disqualification for the first month and numerous months thereafter. 

If a trust is created for the benefit of the plaintiff, the trust must not provide for the individual’s support or it too will result in a disqualification for benefits. For many people running out of money is not as important as losing Medicaid benefits.

Special Needs Trust

The family (or friends) should establish a supplemental special needs trust, also known as a third party special needs trust (SNT). The trust will be drafted in such a way that it will not provide for support, which will then allow the injured person to continue qualifying for SSI and Medicaid. If the family establishes the trust, other family members and friends can make donations to it.

An SNT is not a support trust. It supplements the needs of the individual. The individual pays for rent and food out of his/her SSI benefits. Distributions from the SNT can provide for everything else, including

  • Unreimbursed medications or other medical expenses
  • Trips
  • A car
  • Special equipment
  • Modifying a home for personal use.

One of the more significant benefits is that, unlike a first party SNT (created with the plaintiff’s own money), on the plaintiff’s death, the remaining assets are not paid to Medicaid for services provided; but are distributed to the beneficiaries named in the SNT. This can be an encouragement for a family and friends to make gifts.

As this is an area of law which litigators are not generally familiar with, it may help to provide a pamphlet to the family to warn them of the need to provide carefully for the plaintiff. This can be prepared by a qualified elder lawyer. 

Sample pamphlets are available by contacting [email protected].

Protecting the PI Recovery for the Victim

armored pig protect moneyBy Anne R. Moses

Plaintiff’s attorneys must insure that their clients are properly advised about their awards or settlements to preserve government benefits, if necessary, or to assure that the funds will be available to the plaintiff as long as needed.

After the months and years, you spend winning a favorable result for your client, it is easy to deliver the client’s check and go on to the next matter. The average successful plaintiff typically exhausts his/her recovery in 5 years.

You job is not over

Often a recovery is used by family members because the victim does not have the ability or sophistication to protect the money himself. This is especially true in traumatic brain injury cases or cases involving minors. Your job as the plaintiff’s lawyer I not over when the check is delivered.

Depending on the size of the recovery, your client may have sufficient funds to care for himself for the rest of his life – if the funds are managed appropriately. If a check is paid to parents of a minor or the spouse of a mentally injured victim, unless that person has been appointed as conservator for the victim, or some other arrangement is made, there is no legal recourse to account for the funds. Often the individuals involved are financially unsophisticated, or want to spend the money.

When you accept a PI case, while success may not be assured, you need to introduce the concept of protecting any funds that may be obtained for the benefit of the victim. This tells the people involved that any recovery will be for the plaintiff’s benefit. You should consider bringing in an elder law attorney at this point to explain the options available and to underscore the importance of utilizing this money cautiously. Those fees could be an expense off the top of the award.

Plan for the victim

If the matter is not discussed at the beginning, it should certainly be addressed when a verdict or decision is reached and during any appellate and payment process. Additional court petitions will need to be filed to create the best plan for the victim before he receives money, especially if he is already receiving government benefits, such as Supplemental Security Income (SSI).

The court may appoint a guardian ad litem for the duration of the action, but, typically, there is no ongoing responsibility for the GAL to investigate the care the individual is receiving or how the money is being spent.

Once the verdict or decision has been rendered, it is essential to meet with the victim and his family to discuss the various ways he can receive the settlement, and the advantages and disadvantages of each. Typically they want to receive it outright with no strings. You or the elder law attorney you associate will need to convince them otherwise. The award is not the family’s piggy bank.

Financial options

The options are the following:

  1. Pay out the funds in a lump sum and hope for the best.
  2. Obtain an Annuity.
  3. Establish a guardianship/conservatorship for the victim with a responsible person acting in those capacities to care for the person and manage the funds.
  4. Have the court establish a Trust for the victim. Typically a guardian is not involved in this option.
  5. The court can approve a Self-Settle Special Needs Trust (SNT) that will allow the individual to obtain government benefits, which will extend the life of the funds. By the terms of the SNT, the trustee must stay in touch with the victim and assure he is properly cared for, because the trustee has a fiduciary obligation to the plaintiff.

Lump Sum Distribution

If the funds are paid out in a lump sum to the victim or his family, the victim may be a victim again. This time you cannot help him. Even if a lawsuit is brought to recover the misspent funds, they usually cannot be found.

Annuity

Establishing an annuity will control the amount of funds and the time period over which they can be available. If the plaintiff may need Medicaid, the annuity must be based strictly on his life expectancy, or Medicaid will require that it be cashed in, which will result in a period of ineligibility.

Guardianship/conservatorship (G/C)

A guardian is responsible for the personal welfare of the individual, while a conservator is responsible for the financial welfare of the plaintiff, including proper investments and determining how the funds are to be spent. These roles do not need to be played by the same person. The conservator is required to post a bond in the amount of the value of the assets plus 10%. As assets are spent down, the court can reduce the bond, which is occurs at the time of the triennial accounting.

A conservator can only invest the funds in “legal investments.” These include bonds or other interest-bearing obligations of the United States and interest-bearing general obligations pledging the full faith and credit of a state. They do not receive significant interest rates but they are secure. The objective is to preserve the principal, rather than grow it. If the victim had other funds, the conservator could take control of them. He is not required to transfer them into legal investments, but if he does anything with them, they must thereafter be so invested.

In Alabama, a court typically requires a conservator to account every three years. Some courts have the resources to notify the conservator, but if not, he or she may “forget” and the funds are squandered.

At the accounting, the court awards commissions to the conservator for services based upon the time spent and the complexity of the work. The conservator must provide copies of all bank records, investments and all invoices paid so a complete record is retained.

Upon the plaintiff’s death, the conservator must account to the court. Unless the plaintiff already had a Will or was sufficiently competent to make a Will, the funds will be distributed under the intestacy laws.

Trust

If government benefits appear not to be a necessity for the victim’s lifetime, the victim can petition the court to place the funds in a revocable or irrevocable Trust. Unlike a conservator, a trustee need not post a bond unless the court requires it. The trustee is not restricted to legal investments although some restrictions may be imposed. In this way, the corpus of the Trust can grow. The trustee can at minimum pay for the plaintiff’s health, education, support and maintenance.

The Trust names the trustee who can be an individual or financial institution, and should be a person with financial sophistication.

A Trust Protector can be named who can oversee or replace the trustee. The Trust can provide for the distribution of funds upon the plaintiff’s death according to his wishes.

A Special Needs Trust

A victim is likely to require government benefits at some point – most usually SSI and Medicaid. Both benefits have stringent asset and income limitations. In addition, when the application is made, if any funds of the victim have been transferred over the last five years for less than fair market value (such as funds spent for other family members, gifts, or a sale of property for less than full market value), the victim is disqualified from receiving Medicaid benefits based upon a formula equal to the value of the transfers divided by a number (in 2016 it is $5,800), which the state determines to be the average monthly cost of a nursing home. The plaintiff will have to private-pay for the nursing home until the penalty period is exhausted.

The court can establish the special needs trust (“SNT”) which names a responsible trustee who will pay out funds only for the special needs of the victim. Special needs specifically exclude support or basic food needs, which is paid for by SSI. Trust funds supplement these needs – a private room, furniture, trips, hearing aids, medical needs not covered by Medicaid, and many other items.

On the plaintiff’s death, the funds are first used to reimburse Medicaid for the funds it expended. Any balance is distributed as the SNT directs.

You may not think it is your responsibility to focus your client and his family on planning for the use of his award. However, plaintiff’s attorneys should complete a representation by either discussing the options with your client or associating qualified counsel to help him make the best-informed choice.


anne mosesAnne R. Moses is an attorney at Moses & Moses, PC, in Birmingham, AL. She can be reached at 205-967-0901. For more information visit www.mosespc.com.