If you’re a lawyer with a client who receives needs-based government benefits like Medicaid and Supplemental Security Income (SSI), you know how critical this financial assistance is to him or her. If settlement is coming up, you likely also know that your client will need some strategic planning in order to maintain eligibility for these benefits.
Your client might ask, “Can’t I just take the cash?” The short answer is yes, he or she is entitled to take the full settlement in cash. In some cases, doing so is the best course of action. However, there are consequences to every financial move a person makes when government assistance is involved. Receiving a lump sum settlement can mean disqualification; suddenly, that person has “too much money” to be eligible for benefits. A few settlement planning options can remedy this issue. Below are a few common approaches.
Most states have “spend down” provisions that allow a plaintiff to spend most of the settlement within a set time frame without jeopardizing eligibility for benefits. Simply putting the settlement money in the bank will likely disqualify a person from benefits until the amount has been reduced a bit. Spending should be limited to “exempt” resources, like buying a home or paying for medical expenses that aren’t covered by benefits. More on the spend down approach here.
Many clients who are about to receive a settlement but want to keep their benefits will need to set up certain accounts to comply with those programs. A trust is often an effective way to do that, and there are many options.
Special needs trusts allow a person to benefit from his or her settlement money without losing government benefits. To Medicaid, SSI and other programs, money in a special needs trust doesn’t count towards an individual’s assets or income, because that money pays for services or equipment the programs do not cover. These “non-countable” items include things like a home and furnishings, a car, the pursuit of a college degree, and life insurance policies. Rather than opening a bank account and depositing the money, the settlement assets can fund the special needs trust and be administered by an appointed trustee.
Pooled trusts are set up and operated by nonprofit organizations, which pool together the resources of multiple families for investment purposes. Instead of having the beneficiary choose the trustee, the nonprofit will select a trustee to administer the funds. More on this option here.
Proper planning is crucial for clients who need to keep their benefits after receiving a settlement. They can benefit greatly from speaking with an experienced settlement planner who is well-versed in complying with needs-based government assistance programs. Getting the help of an expert can take the stress out of the planning process and ensure the client continues to receive benefits into the future. If your client is approaching settlement, feel free to call Milestone for advice.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).