You recently were in a car accident which resulted in your disability; you can’t work and are receiving medicaid and social security income benefits (SSI).  The good news is that your attorney just reached a substantial monetary settlement but you are concerned about its impacts on your eligibility for social security income and medicaid.  The settlement money would be a countable resource and render you ineligible for medicaid and social security income.  Conceivable the disqualification could cost you more than the settlement.  A disability trust might be the answer for you.

A disability trust is a creature of statute subject to both Colorado and Federal law.  It is only available to persons under the age of 65 and who is disabled as that term is defined by social security.  Care must be taken to comply with all the legal requirements to achieve the desired outcome.  A Disability Trust must be created before receipt of the moneys from the settlement or litigation and be irrevocable.  The disability trust can be created for the beneficiary by the litigants, his parents, grandparents, guardian or the court.  In any case the proceeds of the litigation or settlement are place into a trust subject to a claim in favor of the department of health care policy and financing.  Usually, the trustee is a family member who has familiarity with the needs of the injured party, but the injured party (beneficiary) cannot be the trustee.  The distribution to the injured party (beneficiary) must be limited to only the beneficiaries “special needs”, i.e. services not covered by medicaid, telephone bills, recreation and entertainment but cannot be for the beneficiaries “support” such as food, necessary clothing and shelter.  The trustee must be careful to use the money only on special needs and must be careful to not render the beneficiary ineligible for medicaid and social security income benefits.

The trust must provide that on the death of the beneficiary, or termination of the trust during the beneficiary’s lifetime, the department of health care’s policy and financing receives any amount remaining in the trust up to the amount of medical assistance paid on behalf of the individual.  Essentially, as to all amounts remaining in the trust, the department of health care must be reimbursed first.

A disability trust has the advantage of 1) avoid disqualification from medicaid because or receipt or constructive receipt of the litigation (settlement) monies; 2) continuance of eligibility of medicaid and social security income benefits; 3) higher quality of life because of the benefits and opportunity to enjoy travel, education, recreation and satisfaction of other special needs; 4) not being liable, in the event of excess monies, to pay back social security insurance or social security disability income benefits.  The possible negatives of a disability trust is the need to have the trust managed by a family member/trustee, not have spending control of the monies and having to reimburse the department of health care policy for medical financial assistance received.  Whether a disability trust works for you, is an important decision to make in consultation with your attorney, family members and prospective trustee.

Vance E. Halvorson
Attorney at Law
© 2016

Disability Trust 9-27-2016 – VEH2013STIC