A litigation recovery may impact the financial security of clients with disabilities. Protecting their resources requires unique planning and care.
The Social Security Administration (SSA) has a specific definition of “disability” that applies only to those who have significant, long-term conditions that prevent them from working enough to earn more than $1,260 per month. Not every person with a disability requires or is eligible for certain plans. For example, some plaintiffs make a return to the full-time workforce, while others do not
.In addition, not every public benefit requires a plan to protect it. This information needs to be ascertained early in the process because some clients and their families may not know what benefits they receive. Whether it is because the names of the benefits are confusingly similar to others or because the same agency distributes multiple different benefits, these facts may need to be nailed down by a special needs planner before proceeding.
Entitlement benefits do not require special needs planning that needs-based benefits do. A client that receives a litigation recovery that puts them over the needs-based benefits’ resource test limit will lose that benefit and possibly end up worse off financially than before. This is where special needs planning comes in.
Transferring the litigation recovery to a first-party special needs trust (SNT) is one frequently used plan. This is a way to preserve public benefits eligibility. The two primary types of first-partySNTs are the (d)(4)(A) or “payback SNT” and the (d)(4)(C) or “pooled SNT.”
Alternatives to SNTs include Achieving a Better Life Experience (ABLE) accounts and spend down plans, among others. These tools can be used in combination depending on the client’s needs, as well as federal, state, and local rules and regulations.