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John Bair
John Bair
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Spending Down to Preserve Government Benefits

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Needs-based government programs like Supplemental Security Income (SSI) and Medicaid base a person’s eligibility on how much income and assets he or she has. If a beneficiary receives a personal injury settlement, that large sum of money can disqualify them from receiving benefits.

In our last post, we discussed a few of the public programs that are “means tested,” meaning those that come with income and asset limits. Fortunately, there are a few options for keeping a personal injury settlement AND these benefits. For example, some plaintiffs establish a special needs trust to supplement government benefits by paying for non-covered services or equipment. Another approach is to try to re-qualify for benefits through a spend down.

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A spend down is a process of spending “excess income,” meaning income above the amount allowed to maintain eligibility for needs-based benefits.

Paying for certain medical bills counts toward a spend down. These bills include:

  • Your medical bills or your spouse’s or child’s medical bills
  • Bills of a child who does not live with you, but whose medical bills you help cover
  • Certain past unpaid medical bills for you or the people above
  • The part of any medical bill not covered by benefits

Individuals receiving needs-based government benefits can also purchase “exempt resources” with excess income to continue eligibility. Exempt resources are items not covered by their benefits. These items include, but are not limited to:

  • A home including mortgage, monthly rent, renovations and furnishings
  • A vehicle including registration and insurance
  • Medical, dental and eye care expenses/bills not covered
  • Education expenses
  • Entertainment/recreation expenses
  • Travel
  • Cost of hiring a financial planner or estate planner
  • Paying off debts
  • Prepaid burial arrangements
  • Personal hygiene and clothing
  • Purchase clothing

A settlement planner is particularly useful in setting up the spend down approach, as he or she can help the beneficiary strategically and appropriately spend the money to comply with government programs.

It’s critical to establish a spending plan prior receiving the settlement to avoid too much lag in government benefits eligibility. The spend down must also be reported to the Social Security Administration. An expert financial planner can ensure that these purchases are reported and documented properly to comply with government rules and regulations.

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