Turning Settlements into Long Term Security: The Power of Trust Administration
By: Joanne Marcus, MSW President & CEO of Commonwealth Community Trust
Introduction
A successful settlement often feels like a turning point—a chance for financial security after a period of hardship. Yet for individuals who rely on means-tested public benefits such as Supplemental Security Income (SSI) or Medicaid, this windfall can unintentionally jeopardize eligibility. A lump-sum payment, if mishandled, may disqualify someone from essential programs that cover medical care, housing, and daily living expenses.
The good news? With proper planning, settlement funds can be preserved without sacrificing benefits. Two powerful tools—pooled special needs trusts (PSNTs) and settlement preservation trusts (SPTs)—offer solutions that protect eligibility while ensuring long-term financial stability. This article explores why these trusts matter, how they work, and the role of professional administration in safeguarding vulnerable clients.
Understanding Means-Tested Benefits
SSI and Medicaid are designed for individuals with limited income and resources. Eligibility hinges on strict financial thresholds—often just a few thousand dollars in countable assets. Receiving settlement funds directly can push a beneficiary over these limits, triggering loss of benefits. For someone with chronic health needs, losing Medicaid coverage can be catastrophic.
Common misconceptions abound: some believe they can “spend down” quickly or gift funds to relatives. Unfortunately, these strategies often violate program rules and lead to penalties. The safest approach is proactive planning through a trust structure that shields assets while complying with federal and state regulations.
What Is a Pooled Special Needs Trust?
A pooled special needs trust (PSNT) is a legal arrangement managed by a nonprofit organization. Multiple beneficiaries “pool” their funds for investment purposes, reducing administrative costs and increasing growth potential. Each participant has a separate sub-account, ensuring individualized control while benefiting from collective management.
PSNTs are ideal for individuals with disabilities who need to maintain eligibility for SSI and Medicaid while using settlement funds for supplemental needs. These trusts allow funds to be spent on items and services that improve quality of life without replacing core benefits.
What Is a Settlement Preservation Trust?
Not every client who receives a settlement qualifies as disabled or needs a special needs trust. For these individuals, a settlement preservation trust (SPT) offers a practical alternative. An SPT is designed to protect settlement proceeds from mismanagement, overspending, or exploitation.
While an SPT does not guarantee benefit eligibility in the same way a PSNT does, it provides structured oversight, professional investment management, and long-term planning. This is especially valuable for minors, individuals with limited financial experience, or those recovering from trauma who may be vulnerable to poor decisions. Attorneys often recommend SPTs when a client’s settlement is substantial but does not require Medicaid planning—ensuring funds are preserved for future needs rather than depleted prematurely.
Why Trusts Are Essential
Without a trust, settlement proceeds count as available resources. This can instantly disqualify someone from SSI or Medicaid, forcing them to pay out-of-pocket for medical care, housing, and other essentials. A trust acts as a protective barrier, allowing funds to be used for supplemental needs without replacing core benefits.
Beyond compliance, trusts offer peace of mind. Families know that funds will be managed responsibly, reducing the risk of missteps that could drain resources prematurely. For clients without disabilities, settlement preservation trusts provide similar security—ensuring that funds are professionally managed and distributed according to a long-term plan.
The Role of a Professional Trust Administrator
A trust is only as effective as its administration. Professional trust administrators serve as gatekeepers, reviewing every disbursement request to ensure compliance with benefit rules and alignment with the beneficiary’s goals. Their responsibilities include:
• Protecting Public Benefits: Confirming that expenditures do not jeopardize SSI or Medicaid eligibility.
• Ensuring Sole Benefit: Every disbursement must serve the beneficiary exclusively.
• Financial Prudence: Evaluating whether requests fit within the client’s budget and long-term plan.
• Documentation and Oversight: Maintaining records for audits and regulatory compliance.
This structured approach prevents impulsive spending and safeguards against errors that could have lasting consequences. For settlement preservation trusts, administrators also help clients avoid financial exploitation and ensure funds are invested wisely.
Tools That Simplify Access
Modern pooled and settlement preservation trust organizations recognize the need for convenience. Many offer prepaid debit cards linked to trust accounts, enabling beneficiaries to make approved purchases without cumbersome paperwork. Online portals provide real-time access to balances, transaction histories, and budgeting tools. These innovations empower clients while maintaining necessary oversight.
For families, these tools reduce stress and improve transparency. They can monitor spending, submit requests electronically, and receive timely updates—all critical for maintaining trust and accountability.
Allowable vs. Restricted Expenses
Trust funds can cover a wide range of supplemental needs, including:
• Medical care not covered by insurance
• Assistive technology and adaptive equipment
• Personal items and clothing
• Utilities and transportation
• Educational and recreational activities
However, certain expenses—particularly food and shelter—require careful handling. Improper payments for these items can reduce SSI benefits or trigger in-kind support penalties. A knowledgeable administrator ensures compliance.
Pooling for Investment Growth
Pooling funds offers significant advantages. By combining resources, trusts can access diversified investment strategies that individual accounts might not achieve alone. This approach reduces administrative costs and enhances growth potential, ensuring that funds last longer. Professional management adds another layer of security, with fiduciary responsibility guiding every decision.
Case Examples
Consider a client who receives a $150,000 settlement after a personal injury case. Without planning, this amount would disqualify them from Medicaid, leaving them responsible for costly medical treatments. By placing the funds in a pooled special needs trust, the client retains eligibility while gaining access to structured disbursements for uncovered expenses like therapy, home modifications, and assistive devices. Over time, prudent investment within the pooled structure helps the funds grow, extending their usefulness for years.
For another client—a minor without disabilities—a settlement preservation trust ensures that funds are professionally managed until adulthood. This prevents overspending and protects against financial exploitation, while allowing for approved expenses such as education and counseling. In both cases, the trust structure transforms a one-time settlement into a sustainable resource.
Choosing the Right Trust
Selecting between a PSNT and an SPT depends on the client’s circumstances. If maintaining SSI or Medicaid eligibility is critical, a PSNT is the clear choice. For clients who do not rely on means-tested benefits but need structured financial oversight, an SPT offers flexibility and security. Attorneys and financial planners play a key role in guiding clients toward the right solution.
Conclusion
Settlements should be a source of relief, not anxiety. For clients who depend on SSI or Medicaid, the stakes are high: mishandling funds can mean losing essential benefits. Pooled special needs trusts and settlement preservation trusts offer proven solutions, combining legal compliance with compassionate oversight. With professional administration, modern tools, and strategic investment, these trusts transform settlements into lasting support systems.
If you represent or care for someone in this situation, consult a qualified trust organization before taking action. The right plan today can protect benefits—and peace of mind—for years to come.
Written by Joanne Marcus, MSW President & CEO of Commonwealth Community Trust
Published in Nevada Justice Association Advocate Magazine, March/ April 2026.
