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Special Needs Planning: Smoothing the Way

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As a tort case nears settlement, the plaintiff, the plaintiff´s trial attorney, and the defendant are all understandably anxious to finalize the paperwork and close the case. Often the case has been substantial quality of life needs that have been put on hold pending resolution of the case.

It is no wonder, then, that the professionals who later join the case to assist with settlement issues are sometimes greeted with impatience and skepticism. A special needs settlement planning attorney may be necessary to evaluate the need for preservation of government benefits; create trusts; design the settlement to meet the short and long term needs of the plaintiff; and analyze tax and other estate planning issues. A settlement professional and/or financial planner may be involved to provide structured settlement annuity information and other financial options. A special needs settlement planning lawyer or other specialists may be involved to assist with lien resolution, a Medicare set aside allocation, or to create a qualified settlement fund. The plaintiff becomes frustrated. Here come more people who raise complications, delay access to the money and charge more fees!

Unfortunately for the plaintiff, complex issues like those described above are unavoidable in many liability cases, especially when the injured party is incapacitated or receives government benefits. The settlement professionals who are brought into the case are needed to ensure that, once the case closes, the net settlement will be free from surprise problems later. Settlement professionals are also needed to ensure that the settlement is structured to truly work in the practical, day-to-day life of the person it is intended to benefit.

As might be expected, the settlement professionals who come in to assist are often frustrated as well. They are commonly brought in too late in the process, and are hired to do a rush job with inadequate information, for as little cost as possible.

There is no pretending that last minute pressure and delay can be completely avoided. However, the process can be much quicker and less expensive and less frustrating if the client´s expectations are realistic and the appropriate players are involved at an earlier time. Below is a guide for 'smoothing the way.'

Stage One: Steps Early in the Case

'Early in the case' will vary depending on the situation. In most cases, however, the following steps should be taken before the settlement begins to take on a life of its own, and definitely before mediation or other serious settlement talks occur.

  1. Determine whether the injured party has the legal capacity to hire professionals, prosecute the case and settle it.
    1. This determination is necessary to determine whether a guardian ad litem is needed. Determination of capacity can be made by personal observation by the trial lawyer and through medical reports.
    2. If the injured party does not have legal capacity, this is the time to create realistic expectations with family members regarding: (i) management of settlement funds (it may not be the family); (ii) involvement of a court or conservator to approve the settlement; (iii) possible creation of a trust to manage and/or protect the funds; and (iv) the possibility of ongoing court oversight.
  2. Obtain thorough information about the family situation.
    1. Obtain accurate names, addresses, and telephone numbers of family members and people in the injured party´s household. It is important to clarify what the family relationships are from a legal perspective; e.g., is it a biological, adoptive, step or in-law relationship? This avoids delay at the time a petition to appoint a conservator and/or approve the settlement is being filed with the court. Sometimes several days are lost after settlement trying to obtain accurate family information.
    2. Identify trouble spots, such as feuding parents of an injured party. Initiating communication with the client at this stage regarding potential problems can minimize upset later, such as when the custodial parent discovers that the 'deadbeat' parent has rights to notice and maybe even rights to some recovery.
    3. If family members are paying for living expenses for the plaintiff during the pendency of the case, prepare a written agreement or a promissory note to document the debt.
    4. If some care is being provided by individuals who do not have the legal obligation to do so, determine if there is an expectation of payment, and if so, consider a written agreement or promissory note to document the arrangement.
  3. Determine whether the injured party receives government benefits of any kind.
    1. Remember that there are numerous government benefit programs, including Social Security Disability Income (SSDI), Supplemental Security Income (SSI), Medicare, Medicaid, Oregon Health Plan, Worker´s Compensation, Supplemental Nutrition Assistance Program (SNAP), and Temporary Assistance to Needy Families (TANF).
    2. Determine whether planning for the preservation of government benefits will be necessary, which will depend on client´s situation and the type of government program.
    3. Determine whether it will be necessary to identify Medicare and/or Medicaid liens.
    4. If government benefits are involved, written documentation should be requested, such as paperwork provided by government agencies and any proof of direct deposits to the bank. Also, a release should be signed by the client authorizing the necessary parties to obtain information directly from the agencies.
  4. Begin assembling a team.
    1. Lien resolution. Determine who will be handling lien resolution. This may be handled by the plaintiff´s attorney. Alternatively, a special needs settlement planning lawyer who works with lien resolution can be brought in.
    2. Government benefits. Involve a special needs settlement planning attorney to analyze public benefits considerations. Government benefits are notoriously hard to identify, and the client rarely gives accurate verbal information. Usually there are numerous programs involved. The special needs settlement planning attorney can more quickly and accurately identify the programs, but may have to talk to a case manager or review written documentation, so the earlier the information is gathered, the better.
    3. Structured settlement. If structured settlement annuities will be considered, involve a structured settlement professional. The plaintiff´s lawyer may want to involve a plaintiff´s structured settlement professional in the case, and this is easier done early on.

Stage Two: Moving Toward Settlement

While not a certainty, at this stage there appears to be a reasonable likelihood of a settlement, and often, an estimate of the range of recovery. Now is the time to ramp up the settlement planning process.

  1. Continue with Medicare and Medicaid lien resolution process.
    1. Initiate or continue communication with third party payers, including Medicare and Medicaid, regarding liens. While the exact amount of liens may not be known if there are still injury-related charges being made, engaging this process will highlight issues and assist the trial lawyer and the injured party to assess what constitutes a reasonable settlement.
    2. If Medicaid is involved, review charges carefully and apply the Ahlborn analysis. (See Arkansas Dept. of Health and Human Services v. Ahlborn, 574 U.S. 268 (2006).) Ahlborn held that the anti-lien provision of the federal Medicaid law bars states from asserting liens against personal injury awards or settlements in amounts exceeding the costs of medical expenses paid on behalf of a benefits recipient.
    3. If Medicare is involved, review current rules and procedures involving conditional payments. This area of the law is rapidly evolving.
    4. Determine whether it is likely there will be injury related Medicare payments after the recovery. If so, review current rules and procedures involving Medicare set aside arrangements in liability cases. Begin a discussion with the client regarding Medicare set aside law, and let the client decide what approach he or she is comfortable with.
  2. Consider how the net settlement funds will be used in the first five years and estimate the amount of funds necessary to pay for these uses.
    1. Is the purchase of a residence contemplated? Will it require modifications? How about a van or adapted vehicle?
    2. If a residence will be purchased, who will own it? Will other family members be living in it? Will they own a share of the residence?
    3. Are there debts to be paid? Are there care givers who provided care that may be paid from the settlement?
    4. Consult the life care plan, if available, to anticipate needs.
  3. Start or continue the discussion with client regarding structured settlement annuities and other options.
    1. Inform client about structured settlement annuities, including the pros and cons.
    2. If the client decides to structure a portion of the settlement, begin discussion of amount. Do an analysis of needs and liquidity necessary to meet those needs. Consider needs for next five years and an emergency reserve.
    3. Consider possible estate/inheritance tax at the death of the injured party, and the possible need for a commutation rider to some or all annuities if structured settlement is decided on.
    4. Consider who should serve as trustee, and the amount of portfolio needed to meet a professional trustee´s minimum requirements.
  4. In large cases, determine if an additional financial planning professional should be involved.
    1. In large cases, the plaintiff may need a financial planner to project needs and assist with an investment plan.
  5. If the injured party is a minor, determine if independent counsel is required.
    1. Inform parents.
    2. Check local court rules and practice.
    3. Consider who might serve.
  6. If the injured party receives government benefits, continue analysis of whether the benefits are based on financial need, and if so, whether client intends to maintain these benefits.
    1. Determine whether the benefits the injured party is receiving (or may receive in the future) are based on financial need.
    2. Discuss with client whether he or she intends to maintain eligibility for needs based public benefits.
    3. If client prefers not to continue receiving needs based benefits, consider alternatives, such as the Oregon Medical Insurance Pool (OMIP).
  7. If it is decided that needs based public benefits should be preserved, determine which approaches are available.
    1. If the net settlement is small, consider whether to spend down on debts, or purchase exempt assets such as a residence or vehicle.
    2. If the injured party is under the age under the age of 65, discuss creation of a special needs trust to receive the net proceeds of the settlement.
    3. Determine the mechanics of creating the special needs trust; i.e. will a court involvement be required?
    4. If the injured party has capacity and a court is not required, is there a parent or grandparent available to sign the trust?
  8. If needs based benefits are not involved, is a discretionary support trust appropriate?
    1. The injured party may have capacity to approve the settlement, and may not need public benefits, but may still need assistance with management of the assets.
  9. Are there multiple claimants, or other circumstances that suggest a qualified settlement fund (QSF) is appropriate?
    1. Discuss with client and with special needs settlement planning attorney.
  10. If a trust will be created, who will serve as trustee?
    1. Some amount of due diligence is required to insure an appropriate trustee is chosen.
    2. Identify possible trustees and discuss with family. Family can begin interviewing professional trustees.
  11. Gather together the team and clarify duties.
    1. The team may consist of all or several of the following professionals: trial lawyer, structured settlement professional, special needs settlement planning attorney, lien resolution firm (if not handled by trial attorney or special needs settlement planning lawyer), financial planner.
    2. It is critically important to clarify duties among members of the team. Who is doing what? The allocation of duties should be in writing. If respective duties aren´t clear, the resulting confusion can cause delay, more costs, and even serious negligence.

Stage Three: Implementing the Plan

A settlement has been reached. The plan can be implemented. Everyone on the team has had a heads up, and much of the necessary information has already been gathered.

  1. Rally the team into action!
    1. Quotes are obtained for structured settlement annuity alternatives.
    2. Amounts for third party liens are finalized.
    3. Petition to appoint a conservator is finalized and filed, with notice to interested persons and an opportunity to object. In a small number of cases, a waiting period is not necessary with the consent of parties entitled to notice.
    4. Petition may include a request to approve the settlement, including the amount of settlement; purchase of annuities; approval of fees and costs; and approval for establishment of special needs trust, as applicable. If a conservator has previously been appointed, a motion is filed in the conservatorship proceeding.
    5. If a QSF is proposed, a petition to establish the QSF and appoint an administrator is finalized and filed. This can be filed in the probate court simultaneously with the petition for approval of the settlement, or in separate proceeding.
    6. Settlement agreement is drafted, and appropriate language is included to incorporate elements of settlement. This is reviewed by members of team. If Medicare set aside is an issue, include appropriate language in the settlement agreement, tailored to the approach decided on by the client. Decide whether to notify regional Center for Medicare and Medicaid Services (CMS).

A final resolution to a liability case is usually a welcome event. With some forethought, we can look forward to even happier endings!

Fitzwater Meyer, LLP is experienced in special needs settlement planning, and can assist you with questions as well as conservatorships, court approval of settlements, lien resolution, special needs trusts, MSAs and other settlement planning matters.

DISCLAIMER:The information contained in this website is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Fitzwater Meyer Hollis & Marmion, LLP or its attorneys. Neither this website nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.