Complex Special Needs Planning That Maximizes Outcomes for Recipients
At Michigan Law Center, we pride ourselves on bringing clarity and compassion to complex cases. One such case, the Hawthorn case, showcases the transformative impact of thoughtful settlement planning. For those navigating the intersection of special needs planning, probate, and public benefits, the lessons from this case offer invaluable insights.
Background of the Hawthorn Case
The Hawthorn Center is one of Michigan's few inpatient mental health hospitals dedicated to treating minors. The case arose from a traumatic event during an unannounced active shooter drill. Employees, patients, and their families were not informed it was only a drill, resulting in panic and significant emotional distress. The aftermath affected 50 minors, all dealing with severe mental health challenges. Representing this vulnerable group required intricate legal and financial planning.
Unique Challenges of the Hawthorn Case
This case presented several unique hurdles:
- State as Defendant and Substitute Parent: Many of the affected minors were wards of the state. The State of Michigan, acting as their guardian, was effectively suing itself. This dynamic introduced potential conflicts of interest that needed careful navigation.
- Public Benefits Preservation: All 50 minors had some degree of disability and received form of public assistance; whether Medicaid, Supplemental Security Income (SSI), or pending applications. Maintaining access to these benefits was critical, requiring strategic financial planning to ensure settlements would not disqualify them.
- Class Action Complexities: As with most class actions, the settlement funds had to be divided among multiple claimants, resulting in smaller individual recoveries. This demanded a solution that would maximize the utility of each minor's settlement.
- Parental Hesitation and Awareness: Many parents initially doubted the legitimacy of the settlement. Educating families and overcoming skepticism were essential to ensure every child received their due compensation.
The Solution: A Pooled Special Needs Trust
Given the challenges, a pooled special needs trust (PSNT) emerged as the ideal vehicle for protecting these minors’ settlements. Here’s why:
- Preservation of Benefits: A PSNT ensures that funds are not counted as a resource for Medicaid and SSI eligibility. This was crucial for maintaining access to essential public benefits.
- Efficiency and Stability: The chosen trust provider, CPT, is a nationally recognized nonprofit with a strong track record, low fees, and excellent fiduciary practices. Their stability reassured families that their children’s funds were in safe hands.
- Customization for Small Recoveries: PSNTs are particularly effective for settlements under $500,000, making them a perfect fit for this case.
- Beneficiary Advocate: One of the unique features of the CPT program, is that it allowed for the appointment of a Beneficiary Advocate. About half of the minor claimants were wards of the State, and therefore the person making decisions for them were assigned foster care caseworkers who tend to rotate in their assignments. In the planning, we were concerned that there be a stable individual or organization to be appointed to make sure that the foster care worker assigned to a patient claimant knew about their PSNT funds and how to use them.
Key Steps in the Planning Process
- Request for Proposal (RFP): To identify the best trust provider, we conducted a thorough RFP process. This involved reviewing tax returns, fee schedules, and operational protocols of various nonprofits. By fostering competition, we secured reduced fees and ensured high-quality management.
- Guardian ad Litem Appointments: For minors who were wards of the state or parents who were unable or unwilling to participate, a guardian ad litem was appointed to act as their legal advocate. This ensured their interests were represented independently, mitigating the conflict of interest inherent in the state’s dual role.
- Beneficiary Advocates: For claimants without active parental involvement, a beneficiary advocate facilitated communication between the trustee, foster care workers, and beneficiaries. This role was critical in ensuring the funds were used appropriately and effectively.
- Family Education: Educating families about the legitimacy of the settlement and the benefits of a PSNT was a cornerstone of this case. Transparency and communication helped overcome skepticism and ensured buy-in from all parties.
Outcomes of the Hawthorn Case
The outcomes of this case were groundbreaking and immensely gratifying:
- Full Recovery Protection: No fees or costs were deducted from individual claimants’ recoveries, preserving the entirety of their settlements.
- Access to Life-Enhancing Resources: Funds from the trust enabled access to services not covered by Medicaid, such as specialized therapies and transportation.
- Benefit Preservation: By placing the settlements into a PSNT, all minors retained their Medicaid and SSI eligibility.
- Long-Term Stability: The structured administration of the trust ensures these funds will serve the minors’ needs throughout their lives, providing stability and security.
- Future Fees Minimized: There are no future probate fees. Because we had the pooled trust providers compete for the business, the ongoing trust administration fees were heavily negotiated to a minimum. With the benefit of being part of the pool for investments, their recovery will continue to grow at about 5% per year, fees kept to a bare minimum, thus maximizing the long-term results for each patient claimant.
- Asset Preservation: The funds can only be used for the sole benefit of the beneficiary/claimant. For minors, the funds cannot be used for anything that parents are legally obligated to provide.
Lessons for Attorneys:
The Hawthorn case underscores several critical lessons for attorneys and families involved in special needs settlement planning:
1. Involve Specialists Early
Engaging a special needs settlement planning attorney with expertise in public benefits and special needs trusts at the outset of a case can streamline the process and avoid pitfalls. Early involvement ensures all necessary data is collected and the best tools are identified.
2. Conduct Thorough Vetting
The RFP process for trust providers highlighted the importance of transparency and competition. This step ensured the best outcomes for the claimants by securing low fees and stable management.
3. Educate and Communicate
Overcoming skepticism among families and ensuring they understand the settlement process and its benefits is critical. Clear, compassionate communication builds trust and encourages participation.
4. Advocate for Long-Term Impact
Settlement planning is about more than distributing funds. It’s about creating lasting stability and maximizing the impact of those funds on beneficiaries’ lives. This requires attention to ongoing management, fee structures, and compliance with public benefits rules.
Lasting Impact Through Thoughtful Planning
The Hawthorn case exemplifies the power of strategic, compassionate legal and financial planning. By leveraging tools like pooled special needs trusts and fostering collaboration among stakeholders, we were able to deliver meaningful outcomes for 50 vulnerable minors and their families.
At Michigan Law Center, we are committed to providing solutions that go beyond the immediate needs of our clients, ensuring their futures are secure and their recoveries impactful. For more details, watch our video on the Hawthorn case or peruse our library of resources and webinars. If you have questions about special needs settlement planning, contact us today to learn how we can help.
