If you are receiving government benefits such as Medicaid, Section 8 or another form of Public Housing, Supplemental Security Income (SSI) or Social Security Disability (SSD) and are expecting a lawsuit settlement, you should be aware of the impacts of the settlement on your benefits. Every government benefit functions differently and therefore it is important to understand the impact of a settlement on each and what you can do to eliminate or at least minimize a possible reduction in your benefits.
Generally speaking, if your benefits depend on your income and/or recourses, a settlement award will reduce or eliminate the amount of your government benefits unless you either set up a Trust with the help of a qualified attorney or engage in a “spend-down,” likewise with the help of a knowledgeable lawyer. If your government benefits are not depended on your income and are based on your work history/taxes you paid (for example, SSD), a personal injury or worker’s compensation award will not impact your benefits regardless of its amount.
Let’s take a look at how a settlement or personal injury award can impact a Medicaid recipient. The impact and legal planning to minimize the negative impact will firstly depend on the category the Medicaid recipient is in; there are 2 Medicaid categories: 1) Medicaid received by a person under age 65 and not disabled and 2) Medicaid received by a disabled (or blind) individual OR any individual over age 65. In the first category, Medicaid benefits depend only on monthly income- it doesn’t matter how much money the person has in the bank (even if it’s millions!). If a young, non-disabled individual in receipt of Medicaid benefits is about to receive an award from a lawsuit, Medicaid will count the award/settlement as income in the month it is received. Therefore, that person will not be entitled to use their Medicaid benefit for the entire month, but would be eligible again the following month (so long as their monthly income doesn’t change).
EXAMPLE 1: Mark is 57 and has Medicaid because his monthly income is very low. He had a work related accident and is advised by his attorney that he will be awarded a settlement in May, 2017. Mark received a check on May 30th for $150,000. Mark was ineligible for Medicaid from May 1, 2017 – May 31, 2017 (the entire month). Mark must report the award for Medicaid, but can reapply for Medicaid benefits as early as June 1, 2017.
However, if Mark was over 65 years of age, he would remain ineligible for Medicaid in June, etc unless and until he took action to either: (a) set up a proper Special Needs Trust or (b) “spend down” the award. Now let’s take a closer look at these two options. Because Mark is over the age of 65, the only Special Needs Trust he qualifies for is a Pooled Income Trust. The settlement check would be deposited directly in his Pooled Trust account in the month of receipt, which would subsequently pay for any of Mark’s expenses such as rent, mortgage, a vacation ticket, credit card bill, etc. The Pooled Trust would be authorized to pay any of Mark’s bills so long as they were items/services used by Mark and not given as a gift to a third party. Medicaid would be notified of the Pooled Trust and settlement award, and Mark would keep his Medicaid without any penalty/discontinuance period. The only “catch” is that if Mark does not use up the entire settlement award during his lifetime, the remaining sum goes to the Trust company and not to his heirs. Therefore, depending on the amount of the settlement and the individual’s expenses, it may be a viable option for the person to “spend down” the settlement instead.
A “spend-down” means that the award recipient, like Mark, must spend all of the award proceeds on exempt items in the month the settlement check is received. It is important to note that, had Mark really received a settlement award on May 30th– he would only have two days to spend the entire sum if he doesn’t want to be ineligible for Medicaid! This is the law because although in May the settlement award is counted as income, the following month it is counted as a resource. Exempt items include one vehicle, money spent on a personal residence, as well as all of the bills itemized above in the Pooled Trust option.
Please note, that an SSI recipient has much stricter rules regarding permissible items (for example, no money must be spent on shelter or food), and that for an individual over age 65, there would be a maximum 36 month (3 year) transfer penalty if the award was used to fund a Pooled Trust account.
Although this information sheds some light on the interplay between government benefits and lump sum awards, it is by no means inclusive of all the information a recipient should be made aware of when deciding how to act to protect his or her benefits. A qualified attorney should be consulted and the “action plan” will vary greatly based on each individual’s circumstance.
Thanks to attorney Irina Yadgarova from YadgarovaLaw.com for this guest post..