Use of Special Needs Trusts in New Jersey for Personal Injury Settlements

How Do Special Needs Trusts Protect Personal Injury Settlements

Personal injury attorneys should avoid receiving payment from the defendant or the defendant’s insurer into the attorney’s trust account for any funds that are intended to be placed into a special needs trust for the benefit of the plaintiff.  Payment of funds by the defendant to the plaintiff's personal injury attorney constitutes constructive receipt by the person with a disability.

Therefore, checks from the defendant should be made payable directly to the trustee of the special needs trust.  Payments from the structure should also be made payable directly to the trustee of the special needs trust.  Constructive receipt by the beneficiary will cause a loss of public benefits because the SSI income and resource rules have been violated, if the funds are held by the personal injury attorney for a long period of time.  If the funds are disbursed by the personal injury attorney in the month received, there is an overpayment of one month and SSI would have to be repaid.

In situations where there is a lump sum settlement and the defendant insists on paying the plaintiff's attorney quickly, the court may order that the monies be held in the attorney's trust account subject to conditions, such as satisfaction of Medicare and Medicaid liens.  This should avoid a constructive receipt argument by SSA.  The trial attorney then makes the plaintiff's check payable to the trustee of the special needs trust at such time as all of the conditions imposed by the court order are satisfied.