What Is The Payback Special Needs Trust?

If your son or daughter is entitled to money from a medical malpractice suit, one of the best financial instruments you can use to protect that money is a payback special needs trust. While ordinary trusts can be used, they introduce special problems and expose your child to the risk of losing other government benefits that he or she would otherwise be entitled to.

Why You Shouldn’t Use Lump Sum Cash Settlements

First things first: do not take a lump sum of cash from a settlement if you’re going to just put it into a bank account or some other traditional investment. Why? Because, a lump sum payment will most likely constitute deemed income. Now, your child probably receives special assistance from Medicaid and SSI.

If you take the settlement amount as cash, you open yourself (and your child) up to a host of problems when it comes time to qualify for Social Security Income benefits as well as Medicaid benefits. Government assistance for these programs is largely based on income and need. If you and your child are perceived to have a lot of savings stashed away, you can forget about getting government assistance.

Even after you’ve set up a structured settlement through the court, there are many companies out there that will try to convince you that it’s in your best interest to take cash now. They’ll offer to buy out your settlement payments in exchange for a lump sum of cash.

Don’t do it. You’ll end up jeopardizing your other benefits. Unfortunately, that’s one of many things that funding companies don’t tell you when looking at ways to get cash now from a settlement.

What Is A PSNT?

A payback special needs trust differs from a normal special needs trust in one important aspect. All of the money in the trust is exempt from the calculations used to determine eligibility for Medicaid and SSI. That’s important, and you’ll most likely need a lawyer specializing in this area of the law to help you set up the trust properly so that it’s not deemed to be a traditional special needs trust.

How To Set Up a PSNT

To get the money into the trust without harming your child’s ability to receive benefits from the government, your child must fund the trust immediately upon receiving the funds from the settlement. The money must come directly from your child or the court.

The money cannot be deposited by a third-party like an insurance company. This is probably one of the most common mistakes parents make. They receive money from the settlement, but instead of setting up the trust with a lawyer and depositing the money directly, they allow the insurance company or the company that was sued, set up the trust or deposit the money.

The Result? Your Trust won’t be considered a Payback Trust

Another stipulation built into all payback special needs trusts is the restriction on the use of funds. All payback trust funds must be used exclusively for the benefit of the child. That means that you, as a parent, cannot use the funds for any personal use. These restrictions are in place to preserve the funds for the future of the child and to protect the child’s long-term financial interests.

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