Trust Protection of Personal Injury Recoveries from Public Creditors
| Publication year | 1990 |
| Pages | 2187 |
1990, November, Pg. 2187. Trust Protection of Personal Injury Recoveries from Public Creditors
Recoveries of money for personal injuries caused by the tortious acts of others can disqualify indigent parties from receiving public entitlements. Medicaid, Supplementary Security Income ("SSI") and other public support programs are no longer made available to them. The funds which injured parties receive disqualify such persons as indigents. Therefore, injured minors with impecunious parents, for example, are required to be self-supporting. Impoverished adults who are incapacitated or in need of protection, defined in the Colorado statutes at CRS § 15-14-101, are similarly ill-treated if funds received for losses caused by their injuries must be used for their basic support needs.
It is possible, however, for personal injury recoveries to be insulated from consideration by public agencies providing benefits to minor children and dis-advantaged adults. The personal injury funds which are recovered may be deemed to be neither income nor resources available to the injured parties, but can be protected by qualifying trusts. This article discusses the relevant state and federal regulations and describes various qualifying trusts (as well as one important exception) and supportive Colorado case law.
State and federal regulations govern the maximum income a public assistance recipient may receive. In 1990, an individual is qualified as eligible for Medicaid if he or she receives less than $1,158 per month in income. This amount includes Medicare withholding for hospitalization, currently $28.60 per month, and social security income, among other sources.(fn1)
In addition to the maximum income allowance, resource limitations define who may be considered eligible for Medicaid funds. An individual may have the following:
1) $2,000 in cash or investments ($3,000 for a couple);
2) a residence, including the adjoining land, regardless of acreage;
3) household goods and effects with an equity value limited to $2,000;
4) an automobile;
5) the value of any burial space;
6) a prepaid irrevocable burial plan not exceeding $1,500; and
These resources are exempt from consideration by the state department of social services where an individual is otherwise entitled to Medicaid benefits. SSI and other public welfare programs have similar qualification requirements.(fn2)7) life insurance having a face or cash value of no more than $1,500.
It is consistent with public policy to exclude personal injury recoveries from the income and resource limitations of public benefit programs. To do this, the recoveries in damages, compensating the injured parties from losses, cannot become available as resources or as income of individuals who otherwise qualify for public support. Availability of the funds to such individuals will result in loss of eligibility for government-provided entitlements.(fn3)
A trust may be created to insulate personal injury proceeds so that the fund is not available for consideration by the public agency providing for an injured person's support. For example, under the Medicaid statute, such a trust would not disqualify a party from the right to receive that program's benefits.(fn4)
Clifton B. Kruse, Jr., Colorado Springs, is a shareholder with the firm of Kruse & Lynch, P.C.
These prohibitions of the federal statute may be avoided. For example, where the Medicaid applicant or recipient is involved in litigation and a secondary needs trust is created as part of the settlement, the first disqualifying element set out under the federal statute does not occur. The injured party or his or her spouse is not the settlor, but, as a condition of the settlement, the defendant, the defendant's insurance carrier or the court itself is the settlor. Therefore, the trust is not voluntarily created by the injured party or by his or her agent.(fn5)
Where the court establishes a single transaction trust under CRS § 15-14-409 or where a continuing conservator-ship is established, the beneficiary does not create the trust for the protected fund nor does his or her spouse. It is the court, or a trustee appointed by the court, who is the settlor. Trust resources established in a protected fund in this way are not available for Medicaid, SSI or welfare disqualification purposes. In Colorado, district court case law affirms this, as does the recent federal court case of Miller v. Ibarra.(fn6) Numerous cases in other states reach this same result by protecting the assets held in a conservatorship from the reach of creditors.(fn7)
Personal injury recoveries held in restricted-access conservatorship accounts should not be available support resources which would affect eligibility for public assistance.(fn8) A conservatorship account may be restricted by the court as to how it may be used, causing its corpus and income to be legally unavailable to the protected person.
In both Petition of Groom and Hyler v. Children's Village,(fn9) the court affirmed this rationale.(fn10) The court in Groom stated that the personal injury fund "should be considered as a fund in substitution for the infirmity caused by the injury."(fn11) The dissent in Langs v. Harder(fn12) agreed that the minor's injury proceeds should be protected. The dissenting opinion stated that the award should be a protected fund and was not meant to provide for the child's daily maintenance; making the child's funds available would be a misallocation solely because of the mother's poverty.(fn13)
The right to withdraw funds from a court-supervised account for support purposes should be initially limited or prohibited. If this is not...
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