Structured Settlements and Special Needs Trusts, a Win-Win combination for Injury Victims.

By:  Don McNay and Gena Lewis
McNay Settlement Group Inc.
Richmond, Kentucky

Written for the September 11, 2000 edition of
National Underwriter Magazine

  

A special needs or supplemental needs trust  is a concept  that attorneys and financial advisors should always consider  for an injury victim who will  require long term care.  

For someone involved in the settlement of a physical injury claim, a structured settlement is often the best concept to meet their financial needs.  

In the vast majority of injury claims involving $500,000 or more,  we see the combination of structured settlements and special needs trusts  used when a person needs long term care.

 It is the combination of both concepts  that allows a large dollar claim to be settled on terms that satisfy all parties.  

Why Structured Settlements?  

In the early 1980’s, Congress recognized that injured people needed special help in managing their money and allowed for structured settlement payments to be tax free to people  hurt in physical  injury claims.  

Structured settlements protect injured people from outside influences and from themselves. The payments can be set in a way to insure financial security.  It is easy to set up a structured settlement and requires little, if any, ongoing administration.  

Structured settlements allow an injured person to go on with their lives and bring closure to a tragic situation. An advisor would be severely  negligence if they did not consider the concept closely in any claim involving an injured person.  

When used to fund a special needs or supplemental needs trust,   a structured settlement allows for payments to be set up in a flexible manner, for a beneficiary other than the special needs trust to be selected,  and to reduce the possibility of waste, mismanagement or economic loss by the trustee.   

Lifetime Payments a Key 

The use of lifetime payments from a structured settlement  are a tremendous tool in funding a special needs trust.  

 The companies that offer structured settlements annuities  will individually underwrite the annuity and “rate” the life expectancy of the injured person.   This often allows for a much higher benefit paid to the claimant.  Considering that the structured settlement payments are tax free, the internal rate of return is one that is almost impossible to achieve with other financial vehicles.  

Security and Peace of Mind:  

A lifetime annuity allows an injured person and those who care about them  to know that money will always be available. 

  With advances in medical science, it is conceivable that someone who has a short life expectancy or considered incapacitated today  will  someday be able to live a normal and healthy life.  If that should occur, lifetime payments of a structured settlement will ensure that funds will always be available and the victim will be able to take advantage of their good fortune.  

The creation of a Special Needs Trust and the use of a structured settlement need not be mutually exclusive.

 A Special Needs Trust provides several tangible benefits. The most apparent is the preservation of government benefits. By implementing a Special Needs Trust, the special needs person can benefit from continued eligibility to needs based programs like Medicaid or Social Security.  Medicaid can be a crucial tool in meeting the medical needs of a seriously injured or disabled person.  

When a Special Needs Trust is set up, there are several requirements that must be met. First it must be irrevocable, and the beneficiary must be disabled as dictated by social security regulations and under age 65.  At the person’s death, any money in the trust must first be used t o pay the government back for funds spent on the injured person.  

Depending on the nature of the claim and how it is settled, payments can be made via structured settlement to fund a trust and also in separate payments for the family or dependents.   A family member can be named as beneficiary of the structured settlement  payments at death.  

The complicated needs of the special needs person are met and the future needs of the family or survivors are met as well. This is particularly attractive when the injured party was previously the primary breadwinner.  

Coordinating these two powerful tools achieves the greatest benefit for the beneficiary. This allows for the highest standard of living possible under what is usually a difficult situation.

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Don McNay, CLU, ChFC, MSFS, CSSC is President of the McNay Settlement Group Inc. in Richmond, Kentucky.   Gena Lewis is Director of Plaintiff Services and Corporate Treasurer for the McNay Settlement Group Inc.