You agree to the Terms of Use and Privacy Policy by your Additional Use of this site.

Special Needs Trust Notification Requirements

September 27, 2023

Ensure Medicaid notification requirements are met with our easy-to-use template. Protect government benefits & gain quick approval. Learn more about trust administration

Overview

In order to maintain Medicaid or other government benefits, such as SSI, state Medicaid agencies require notification that assets are being transferred and a Special Needs Trust is being created. State Medicaid agencies also require notification of any amendment to said Special Needs Trust. When filing the required notice, it is wise to make the state Medicaid agency’s job easy by tailoring the transmission letter to address the critical elements of the qualification.

The following sample letter provides an easy-to-use template to assist in satisfying state Medicaid notification requirements and facilitating a quick and easy approval.

Sample Letter

Re: [Trust Name]

Sirs and Madams:

This correspondence serves as a fulfillment of the ongoing notification requirements related to the attached [Trust Name] (hereinafter referred to as “Trust”), established to satisfy the requirements of the Social Security Act for protecting the Beneficiary’s government benefits received pursuant to 42 USC §1396p(d)(4)(A).

Summary of Information:

Beneficiary Name: [Beneficiary Name]
Beneficiary DOB: [Beneficiary DOB]

The Trust Assets are Not an Available Resource:

The Trust meets the requirements of a first-party Special Needs Trust located at 42 USC §1382b(e)(5) and implementing Social Security Administration policies set forth in the Program Operations Manual System (hereinafter referred to as “POMS”) at SI 01120.203.B treating assets as exempt if held in trusts that comply with 42 USC §1396p(d)(4)(A). The POMS set forth its procedure for developing Medicaid trust exceptions to resource counting at POMS SI 01120.203(D)(1). The Trust fully satisfies the eight-step procedure as follows:

1. The Trust is established with the assets of an individual under age 65 at the time of establishment and funding, as the Beneficiary was born on [Date]. POMS SI 01120.203B.1.b.

2. The Trust is established with the assets of a person with a disability as defined by 42 USC §1382c(a)(3) as the Beneficiary is disabled [Describe Disability]. POMS SI 01120.203B.1.d.

3. The Trust is established for the sole benefit of the person with a disability, and the Beneficiary is the Trust’s sole Beneficiary as set forth in the Trust document.

4. The Trust is established by [Name].

5. The Trust provides specific language to reimburse all State Medicaid agencies up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under any State’s Medicaid plan as set forth in this Trust document.

6. The Trust is not a countable resource under POMS SI 01120.200D.1.a and b because:

The Beneficiary does not have legal authority to revoke or terminate the Trust.
The Beneficiary cannot direct the use of Trust principal for his/her support and maintenance.
The Trust is completely discretionary and does not provide for mandatory distributions to the Beneficiary, and as such, the beneficial interest in the Trust has no value.

7. The Trust is irrevocable and, by its expressed terms, does not provide the Beneficiary the right to revoke or terminate the Trust and then meet their needs for food or shelter or to direct the use of the Trust principal for their support or maintenance.

8. Accordingly, the Trust meets all the requirements for the special needs trust exception.

Transfers to Trust are Exempt

As applicable, the Trust is intended to satisfy the requirements of the Social Security Act for excluding certain transfers of assets, including transfers to trusts, from causing SSI ineligibility for the transferor. It therefore meets the requirements of the Social Security Act at 42 USC §1382b(c)(1)(C)(ii)(IV) and implementing Social Security Administration policies at POMS SI 01150.121(A)(3) as an exception from disqualification because the transfers are of resources being transferred to a trust created pursuant to 42 USC §1396p(d)(4)(A). This Trust benefits only the Beneficiary at the time the Trust is established or at any time for the remainder of the Beneficiary’s life (pursuant to POMS SI 01120.201(F)(2)). Accordingly, the transfer of assets to this Trust is not disqualifying.

Conclusion

The notification process is a necessary part of creating a Special Needs Trust. Providing a simple and concise communication to the state Medicaid agency can help ensure that trusts are approved.

Additional Information

For more detailed information on Special Needs Trusts, the applicable fees, and how they can impact government benefits, visit www.easternpointtrust.com. We can provide solutions tailored to your situation and fully transparent information about trust administration.

Finally, remember that special needs trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your SNT serves its intended purpose and provides for your loved ones in the most effective manner possible.

Seek brands that maintain a formal, professional tone and utilize technical, regulatory, and financial terms throughout the communication. The style conveys authority, expertise, and dependability, aiming to resonate intellectually with its audience. The brand persona reflects a knowledgeable industry leader committed to educating and guiding its clients through complex financial matters.

Next step

Have a question about your settlement?

Book a free 15-minute consultation with an Eastern Point Trust expert.

Talk to an Expert

Frequently Asked Questions

Under IRC § 61, all income from whatever source derived is taxable unless a specific exclusion applies. Lawsuit settlements are included in gross income by default. The key exceptions are physical injury and physical sickness recoveries under IRC § 104(a)(2), which are excluded from gross income when received as compensation for a physical injury or physical sickness claim.

IRC § 104(a)(2) excludes from gross income damages received on account of personal physical injuries or physical sickness. The exclusion applies to compensatory damages only. The injury or sickness must be physical — emotional distress damages, employment discrimination recoveries, breach of contract proceeds, and punitive damages do not qualify for the exclusion and are taxable.

Yes. Punitive damages are taxable as ordinary income regardless of whether the underlying claim involves a physical injury. IRC § 104(a)(2) does not exclude punitive damages. Even in a physical injury case where compensatory damages are excluded, any punitive damages awarded are included in the plaintiff's gross income and subject to federal income tax.

For most plaintiffs, no. The Tax Cuts and Jobs Act of 2017 suspended miscellaneous itemized deductions under IRC § 67(g) for tax years 2018 through 2025, eliminating the attorney fee deduction for most civil litigation recoveries. IRC § 62(a)(20) provides an above-the-line deduction only for qualifying discrimination and whistleblower cases. Plaintiffs in personal injury, breach of contract, and most tort cases cannot deduct attorney fees under current law.

A Qualified Settlement Fund (QSF) under IRC § 468B separates the timing of the defendant's payment from the plaintiff's taxable receipt of funds. The defendant transfers proceeds to the QSF and takes an immediate tax deduction. The plaintiff does not recognize taxable income until distribution from the QSF, preserving a planning window to implement structured settlements, Plaintiff Recovery Trusts, Special Needs Trusts, or other tax-minimization strategies before receiving taxable income.

A Plaintiff Recovery Trust (PRT), administered by Eastern Point Trust Company, addresses the attorney fee double tax created by Commissioner v. Banks, 543 U.S. 426 (2005), and worsened by TCJA 2017. The PRT separates the attorney fee portion of the settlement from the plaintiff's taxable recovery, allowing each party to recognize income only on their respective portion. Eastern Point Trust Company has saved plaintiffs $30 million or more through PRT structures. The PRT is implemented during the QSF administration window before taxable distributions occur.

10 Things You Should Know About Plaintiff Recovery Taxation

Winning the case doesn’t always mean maximizing the recovery.

Special Needs Trust Notification Requirements

Overview

Sample Letter

Conclusion

Additional Information

Frequently Asked Questions

Related Articles

10 Things You Should Know About Plaintiff Recovery Taxation

The Federal Income Taxation of Litigation Settlements and Judgments

How to Minimize Tax Liability on Lawsuit Settlements or Avoid Paying Taxes on Settlement Money

Must a Court Approve a Qualified Settlement Fund?

Taxation of Settlements: Understanding Attorney's Ethical Duties Regarding Settlement Tax Consequences

Qualified Settlement Fund Approval – Listicle of Legal Requirements

Qualified Settlement Fund (QSF) Creation - List of Key Points Lawyers Need to Know

Are Compensatory Damages Taxable? A Comprehensive Guide for the Layperson

Utilizing QSFs as a Resolution Tool

Qualified Settlement Funds (QSFs) - Unraveling the Unusual

The Privacy Benefits of Qualified Settlement Funds (QSF)

Qualified Settlement Fund Administration (QSF) – A Listicle of 10 Critical Elements

Understanding Qualified Settlement Funds, Taxation, and Tax Reporting

Qualified Settlement Fund Administration: Myths vs. Reality

Understanding the Role of a Qualified Settlement Fund Administrator

Understanding the Taxation and Benefits of Qualified Settlement Funds (QSFs)

Taxation of Settlements and Judgments: Understanding the Complexities

What Does QSF Mean?

Understanding Taxation of Personal Injury Settlements with Punitive Damages

Know Your Client and Anti-Money Laundering Obligations of Financial Institutions and Their Clients

You Have Needs, We Have Expertise

You Have Needs,
We Have Expertise