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What is a Trigger Trust- and Does Your Client Need One?

What is a Trigger Trust- and Does Your Client Need One?
Sage Settlement Consulting

Injured claimants not currently on needs-based government benefits such as Medicaid and Supplemental Security Income (SSI) may require government assistance in the future if their settlement funds are insufficient to pay for their care. Establishing a support trust with a “trigger” provision provides immediate access to the settlement funds and a mechanism to access public benefits in the future.

How Does a Trigger Trust Work?

At the time of settlement, a support trust is established for the injured claimant and funded with the settlement proceeds. The trustee then facilitates distributions for the benefit of the injured claimant, with broad discretion over the purpose, timing, and amount of each distribution. When drafting the support trust, it includes a one-time “trigger” provision (also referred to as a “springing” provision by some trust providers).

Upon a “triggering event” (e.g., the injured claimant applies for Medicaid), the support trust automatically converts to a Special Needs Trust (SNT). Even though an SNT is more restrictive regarding permissible distributions, funds held within an SNT are not countable assets when determining needs-based government benefit eligibility.

Funding a Trigger Trust with a Structured Settlement

An injured claimant may elect to fund a support trust with a structured settlement annuity to take advantage of income tax-free growth and reduce trust company fees. It is important to note that in this scenario, some states require a commutation rider to reimburse Medicaid for a future lien should the support trust convert to an SNT.

Contact Sage Settlement Consulting for Trust Planning Assistance

Sage’s experienced settlement consultants and national network of trust providers and trust attorneys are ready to help. Contact us today.

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