September 1, 2020

As a case comes to a close, personal injury victims often have plans for their settlement recovery. They might want to pay bills accumulated throughout the case, reimburse family members who helped them after their accident, seek additional medical treatment and therapies, travel, buy a home, buy a car…the list goes on. From time to time, our beneficiaries approach us about their dream to start a business and use money in their trust to do so. In some cases, their goal is to provide for themselves or their family beyond the settlement, while others simply want to monetize a hobby. Whatever the reason, as Trustee we have a duty to make decisions that are in the best interest of our beneficiary clients, and we have chosen to take a holistic approach to helping them achieve their post-settlement goals while limiting risk.

How a beneficiary uses a pooled trust sub-account to start a business is, at best, a grey area. It is not explicitly allowed nor prohibited in any of our trust documents, so the decision is entirely unique to each trust beneficiary. The answer to the question of whether the trust can help the beneficiary start a business first depends on what kind of trust the beneficiary has.

Settlement Management Trust

The goal of a settlement management trust is to preserve and grow settlement funds, but the language is generally broad enough to allow for a wide variety of uses in keeping with the beneficiary’s needs and goals. This type of trust is not for people with means-tested benefits, such as Supplemental Security Income (SSI) and Medicaid. When a beneficiary wishes to start a business, we ask them to create a business plan, which is reviewed by our distribution committee that reviews high-dollar requests. They take into account the beneficiary’s short-term and long-term needs, the amount of expected spend relative to the balance of the trust, whether any additional funding of the trust (such as annuities) is expected, as well as the viability of the proposed business and whether the beneficiary has the requisite skillset to run a business. We require that the beneficiary have their proposal reviewed by an independent attorney and CPA, and that they have any insurance that would be prudent based on the type of business they have. If the request is approved, we set guidelines to ensure spending is controlled. There is also a layer of protection for the beneficiary because this type of trust includes a spendthrift provision, which means that creditors cannot compel the trustee to make payments. The beneficiary owns the business and has the latitude to run it as they see fit but with boundaries to keep them from overspending.

Special Needs Trust

Whether a special needs trust (SNT) can be used for this purpose is a much more difficult question to answer. Reasonable minds can disagree on this point, and it has been the subject of much debate on listservs. The reason is that SNTs are structured differently than settlement management trusts and have different rules. SNTs are designed for disabled injury victims on means-tested benefits (such as SSI and Medicaid) because any funds in the trust will not be counted as income for public benefits qualification. In order to remain a non-countable resource, the Trustee must follow certain rules regarding disbursement of funds. These rules vary based upon the injury victim’s benefits and where they live because the rules can vary from state to state. Improper administration can (and almost certainly will) have a negative impact on the beneficiary’s public benefits, so trustees of SNTs must be especially careful when approving funds to be disbursed.

Remaining Qualified for a Special Needs Trust

To qualify for a special needs trust, the injury victim must be disabled in accordance with the Social Security Administration’s definition, which means they must be unable “to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”[1] In other words, they must be unable to earn enough to perform “substantial gainful activity,” which in 2020 is $1,260 per month.[2] For that reason, and because people with SNTs are generally reliant on their trust for support, both the risk and potential income of having a business are not entirely compatible with a special needs trust; however, that does not mean it is impossible. The risks would need to be very low, the start-up costs small relative to the amount in the trust, and the money earned minimal and deposited into the trust regularly to avoid exceeding the income and/or asset caps of any benefits they have (which vary by benefit and by state). It is a much more complicated proposition than with a settlement management trust, but the argument can be made that such an expenditure is proper and contributes to the beneficiary’s quality of life, so long as it does not create issues with their benefits or deplete their trust.

What Happens if the Injury Victim No Longer Qualifies for a Special Needs Trust?

Assuming the SNT beneficiary does start a business, and it does well, what happens if the beneficiary starts earning enough that they are no longer considered disabled? First, they would lose eligibility for their means-tested benefits. They may not mind losing SSI if they are earning enough from this business, but if they are reliant on Medicaid, then they would need private insurance which may be very costly. If they have Medicare or Social Security Disability, these benefits are not impacted by income or assets, so they would not be impacted. The SNT could remain in place as a support trust but would no longer serve its purpose of helping a beneficiary remain qualified for means-tested benefits. First-party SNTs are, by definition, irrevocable, so the beneficiary would not be able to empty out their trust on-demand.


Much can be said of the satisfaction that comes from working and having a business. While this type of endeavor is not ideal for every beneficiary, a trustee must carefully consider this type of request to make sure it is in the best interests of the trust beneficiary. If a potential trust beneficiary is thinking about going down this path, it is best explored before the trust is created to see if the trustee is open to the idea and what they would require.

[1] 20 CFR § 404.1505

[2] For people who are blind, the SGA limit is $2,110. More on SGA can be found here: