The Settlement Alliance

What is a d4A Trust?

What is a d4A Trust?

Jan 20, 2017

A d4A trust is a type of Special Needs Trust, intended to protect the assets of a disabled individual. You may have heard of it referred to as a “first party special needs trust.” The “d4A” designation comes from its place in federal law: 42 U.S.C. §1396p(d)(4)(A). Here are the basics you should know:

Who is eligible for a d4A Trust?

A d4A trust is not available to anyone; strict eligibility requirements must be met. If an individual is under age 65, is legally deemed to be disabled, and is currently receiving needs-based benefits (e.g. SSI, Medicaid), then that individual is likely eligible for a d4A trust.

How is a d4A Trust funded?

A d4A trust is “self-settled” trust, meaning that the assets used to fund the trust belong to the beneficiary—settlement proceeds, for example. The settlement proceeds can either be used to directly fund the trust, or a structured settlement can be used to fund the trust, offering additional levels of tax benefits for the settlement proceeds.

Why is a d4A trust useful?

If your loved one receives needs-based government benefits like Medicaid or SSI, the acceptance of a settlement may cause them to lose eligibility for their benefits. While some may believe that a settlement would pay for all of a disabled individual’s needs, the reality is that the cost of caring for a disabled individual can be astronomical. Medication, physical therapy, doctor visits, home and vehicle modifications, medical equipment, round-the-clock care, and special dietary needs are just some of the examples of costs that need to be taken into account when planning how to take care of a disabled individual. By directing settlement funds into a d4A trust, the disabled individual may be able to continue receiving needs-based benefits, while supplementing those benefits with distributions from the trust.

Which goods and services are eligible for distribution?

There are specific goods and services that are eligible for distributions from a d4A trust. There are federal AND state guidelines that determine how funds held in a d4A trust can be spent. Here are some common examples of eligible distributions:

  • Purchasing a home; paying off a mortgage on a home; modifying a home to accommodate an individual’s disabilities; home repairs, remodeling, or deferred maintenance expenses
  • Purchasing an automobile and/or paying for registration and insurance
  • Purchasing home furnishings or appliances
  • Medical expenses and/or bills not covered by Medicaid or Medicare (e.g. higher quality wheelchair than what is authorized by Medicaid/Medicare)
  • Dental expenses, eye glasses, physical therapy, support services not covered by any benefit program
  • Education expenses (including computer, software, books, etc.)
  • Entertainment/recreation expenses
  • Paying off debts (e.g. existing credit card debt, loans with supporting paperwork)
  • Personal hygiene (e.g. haircuts, manicures)

What else should I know about d4A trusts?

Under current law, d4A trusts include a Medicaid payback provision. When the trust beneficiary dies, any funds remaining in the trust must be used to reimburse Medicaid for medical assistance that Medicaid had provided to the beneficiary. If any money is left in the trust after Medicaid is reimbursed, the funds may be eligible for distribution to heirs or beneficiaries.

For more information about d4A trusts, contact The Settlement Alliance. Our experienced settlement planners will answer your questions and can assist with every step of the trust planning process.

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential