Protecting Settlements / Medicare Set-Asides

There are special considerations when the plaintiff in a lawsuit is disabled and anticipates receipt of settlement funds or judgment proceeds. The cash must not simply be delivered to the plaintiff. The type of benefits must be analyzed to determine if there will be a harmful effect if the disabled person receives the settlement or judgment, and appropriate steps should be taken to protect the disabled plaintiff’s benefits.

There are a variety of options in these circumstances. By far, the top three options, include:

  • Engaging in a “spend down” of the proceeds. This is usually limited to smaller awards or other very particular circumstances.
  • Placing the proceeds into a “pooled” special needs trust. There are several pooled trust companies that can manage the proceeds efficiently and with reasonable fees.
  • Placing the proceeds into a standalone “payback” special needs trust. While this option will typically cost more to set up in the beginning, it may or may not be more costly to administer depending on the client’s circumstances, the size of the award, and the type of benefits the disabled person is receiving.

Benefits of a special needs trust:

  • 1 Flexibility in administration.
  • 2 Tax advantages.
  • 3 Opportunity to defer repayment to the State for Medicaid expenses previously made until the death of the disabled person.

Another consideration that may arise in a settlement is whether Medicare is entitled to repayment of previously paid medical bills, or where a disabled plaintiff who is receiving, or likely to be receiving, Medicare will have future medical expenses related to an injury they sustained and that relates to the lawsuit. In these cases, an analysis must be done to determine the proposed future medical costs and an arrangement to set aside an amount for the purpose of paying expenses Medicare would otherwise pay in order to protect the award or settlement. In the event the disabled person is on a benefit, such as SSI or Medicaid, a special needs trust can be drafted to both protect these benefits and concurrently ensure Medicare’s interests are protected as well.


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