Structured Settlements and the Deficit Reduction Act of 2005
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Oast & Hook attorney Andrew Hook, the current president of the Special Needs Alliance (SNA), was recently interviewed for an article in The Structured Settlements Report. The article considered the impact of the Deficit Reduction Act of 2005 (DRA) on structured settlement annuities for persons receiving needs-based benefits such as Medicaid and Supplemental Security Income (SSI).
Structured settlement annuity brokers could cause problems for their clients if the brokers are not careful in writing these annuities because the clients could lose their eligibility for needs-based government benefits. The structured settlements should be set up with special needs trusts or Medicare set-asides, which, if created properly, are exempt for Medicaid and SSI eligibility purposes.
The DRA requires that the state be named as the primary beneficiary of an annuity unless the applicant has a spouse, or a minor or disabled child. The Center for Medicare and Medicaid Services (CMS) permits each state to write its own interpretation on how this DRA provision applies to Medicaid eligibility in the state. As a result, states may vary on their interpretations and applications of the DRA. Mr. Hook said, “What has pretty much come down from CMS is they are not going to get involved with how a state interprets federal laws. It gives flexibility in the interpretation by rewriting the eligibility. What we are beginning to see, however, is that the states are going in all different directions. This is something that could create a lot of problems.” The potential is for states to restrict the eligibility to qualify for Medicaid, according to Mr. Hook. Some states have already done so by lengthening the review period for qualification from three years to five, and by creating a new period of ineligibility for each new annuity. Structured settlement annuitants who have not listed the state as the primary beneficiary could end up being ineligible for Medicaid.
Mr. Hook also recommended that structured settlement annuity brokers consult with special needs planning attorneys. “We are trying to work with the structured settlement people to be brought in at an earlier point in the settlement process. We are experts at what is available. [Special needs plaintiffs] need, typically, a larger reserve fund. [The] issue sometimes comes up after a settlement is entirely structured, and the claimant asks, ‘How am I going to get my house?’ There was no lump sum. It’s much better to get in early. You can discuss everything, make plans.” SNA member Bernard Krooks agrees, “It is critical that a structured settlement be placed into a special needs trust or else the claimant could be denied Medicaid. The personal injury bar is not educated about this. We are trying to educate personal injury attorneys and structured settlement brokers.”
The attorneys at Oast & Hook can assist personal injury attorneys, structured settlement brokers, and their clients with designing appropriate settlements that will preserve the client’s eligibility for needs-based government benefits. This assistance is necessary even if the client is not currently receiving such benefits, because the need may arise in the future.
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