How a Special Needs Trust Protects Government Benefits While Receiving a Settlement or Inheritance

When someone relies on need-based government benefits, receiving a personal injury settlement, workers' compensation award, or inheritance can create a tricky situation. These benefits often have strict income and asset limits. If those limits are exceeded, the person may lose access to vital support like Medicaid or Supplemental Security Income (SSI).

A special needs trust (SNT) offers a way to protect these benefits while still allowing the individual to receive compensation or inheritances. I want to walk you through how this works, why it matters, and what steps you can take to safeguard your financial future.

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Understanding Need-Based Government Benefits and Their Limits

Need-based benefits like Medicaid and SSI are designed to help people with disabilities or low income cover essential costs. These programs have strict rules about how much money or property a person can own. If you have too many assets or income, you might lose eligibility.

For example, SSI limits countable resources to $2,000 for an individual. Medicaid has similar asset limits, though they vary by state. This means if you receive a large settlement or inheritance directly, it could push your assets over the limit. As a result, you could lose your benefits, which might cover medical care, housing, or daily living expenses.

This is where a special needs trust becomes a valuable tool. It allows you to keep your benefits while still accessing funds from a settlement or inheritance.

What Is a Special Needs Trust and How Does It Work?

A special needs trust is a legal arrangement that holds money or property for the benefit of a person with disabilities or special needs. The trust is managed by an independent trustee, who uses the funds to pay for things that government benefits do not cover.

The key point is that assets placed in a properly structured SNT are not counted as resources for government benefit eligibility. This means the person can receive money from a settlement or inheritance without losing their benefits.

There are two main types of special needs trusts:

• First-party special needs trust: Funded with assets that belong to the person with disabilities, such as a personal injury settlement or inheritance.

  
  

• Third-party special needs trust: Funded with assets from someone else, like a family member’s gift or will.

  
  

Both types protect eligibility but have different rules about how the funds can be used and what happens to leftover money after the beneficiary passes away.

Using a Special Needs Trust After a Personal Injury or Workers' Compensation Settlement

If you receive a settlement from a personal injury or workers' compensation case, you might worry about losing your government benefits. Placing the settlement funds into a first-party special needs trust can protect your benefits.

Here’s how it works:

1. Settlement funds go into the trust: Instead of receiving the money directly, the settlement is paid into the SNT.

   
   

2. Trustee manages the funds: The trustee uses the money to pay for things that improve your quality of life but don’t affect your benefits. This might include medical equipment, therapy, transportation, or personal care.

   
   

3. You keep your benefits: Because the funds are in the trust, they don’t count as your personal assets. You continue to receive Medicaid, SSI, or other benefits.

   
   

This approach ensures you get the compensation you deserve without risking your essential support.

Protecting an Inheritance with a Special Needs Trust

Inheritances can also threaten eligibility for need-based benefits. If you inherit money or property outright, it may push your assets over the limit.

A third-party special needs trust can be set up by the person leaving the inheritance. This trust holds the assets for your benefit without counting against your resource limits.

For example, a parent or relative can create a trust in their will that leaves money to you in a way that protects your benefits. The trustee manages the funds and uses them to cover expenses that government programs don’t pay for.

This planning helps you receive your inheritance safely and maintain your benefits.

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Choosing the Right Trustee and Managing the Trust

The trustee plays a crucial role in managing a special needs trust. This person or institution handles the money, pays bills, and ensures the funds are used properly.

Choosing a trustworthy and experienced trustee is important. They should understand the rules around government benefits and how to spend trust funds without jeopardizing eligibility.

Some families choose a trusted family member or friend. Others prefer a professional trustee, with experience in special needs trust administration.

Bryan & Jetter, PLLC offers legal services that include setting up and managing special needs trusts. Their team understands Washington State laws and can help you protect your benefits while handling settlements or inheritances. You can learn more about their services here.

Steps to Set Up a Special Needs Trust in Washington State

If you want to protect your benefits while receiving a settlement or inheritance, here are the general steps to set up a special needs trust:

1. Consult an experienced attorney: Special needs trusts have complex rules. A lawyer familiar with Washington State law and with special needs trusts can guide you.

   
   

2. Decide on the type of trust: Determine if you need a first-party or third-party trust based on your situation.

   
   

3. Draft the trust document: The attorney prepares the legal paperwork outlining how the trust will work.

   
   

4. Choose a trustee: Select someone responsible to manage the trust.

   
   

5. Fund the trust: Transfer the settlement, inheritance, or other assets into the trust.

   
   

6. Manage the trust: The trustee administers the funds according to the trust terms and government rules.

   
   

Bryan & Jetter, PLLC can assist with all these steps, ensuring your trust is set up correctly and protects your benefits. You can find more information about their estate planning services here.

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Why Protecting Benefits Matters

Losing access to Medicaid or SSI can have serious consequences. These programs often cover essential medical care, therapy, and daily living support. Without them, you might face high out-of-pocket costs or reduced quality of life.

A special needs trust helps you keep these benefits while still receiving compensation or inheritances. It gives you financial security and peace of mind.

If you or a loved one is in this situation, it’s important to act early. Setting up a trust before receiving funds can prevent problems and delays.

Final Thoughts on Special Needs Trusts and Benefit Protection

Navigating the rules around government benefits and settlements or inheritances can feel overwhelming. A special needs trust offers a clear path to protect your benefits while accessing funds you need.

Working with experienced legal professionals who understand Washington State laws can make all the difference. They can help you set up the right trust, choose a trustee, and manage the funds properly.

If you are facing a personal injury or workers' compensation settlement, or expecting an inheritance, consider how a special needs trust can protect your future. Taking this step ensures you keep the support you rely on while improving your quality of life.

For more guidance, you can explore the services offered by Bryan & Jetter, PLLC, who specialize in personal injury, workers' compensation, and estate planning in Kitsap County and throughout Washington State. Their compassionate approach helps clients feel supported and secure.

This article is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for advice specific to your situation.