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| Milestone Consulting, LLC

Government-supplied benefits like Supplemental Security Income (SSI) and Medicaid help thousands of Americans with special needs in paying for their care. These needs-based benefits most often have a low ceiling in the resources they provide each person – low enough that many disabled individuals supplement the payment for their care in other ways.

But a large lump sum of money, such as inheritance or proceeds from a settlement, can disqualify a person for SSI, Medicaid and other government benefits. Instead of discontinuing benefits, however, individuals in this situation have several options. They can establish a special needs trust to supplement rather than replace government benefits by paying for non-covered services or equipment. They can also try to re-qualify for benefits through a spend down. 

What is a Spend Down?

The term excess income refers to income that goes above and beyond the amount that allows a person to qualify for needs-based government benefits. When an individual accumulates paid or unpaid medical bills that are greater than their excess income, he or she continues to receive benefits. A spend down is a process of spending excess income on medical bills to avoiding incurring excess income that disqualifies a person from SSI, Medicaid, and other programs. Spend downs work similarly to a car insurance deductible – individuals are responsible for bills up to the amount a benefits program will pay.

Medical bills that count toward a spend down, according to the New York State Education Department, 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

How Does a Spend Down Preserve Benefits Eligibility?

An individual can remain eligible for benefits by spending excess income in the month he or she receives it. Some programs count a lump sum as income in the actual month the money is received, whereas other states treat a lump sum as income in the month after receipt. It is for this reason that a beneficiary may still need to repay part or all of the benefits for the month in which he or she receives the lump sum.

When a disabled individual receives inheritance or settlement proceeds, a financial planner can help him or her strategically and appropriately spend the money on benefits-exempt resources to comply with government programs. It’s critical to establish a spending plan prior receiving the lump sum to minimize the loss of government benefits.

What are Some Exempt Resources?

Individuals receiving needs-based government benefits can make certain purchases with excess income to continue eligibility, as long as they purchase items not covered by the programs. These items include, but are not limited to:

  • A home including mortgage, monthly rent, renovations, furnishings, and home modifications to accommodate the individual’s disabilities
  • 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
  • Pre-pay burial arrangements
  • Personal hygiene and clothing
  • Purchase clothing

It’s important to note that the spend down must 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.

Spend downs can be an excellent option for disabled individuals who have just received a lump sum from a settlement or inheritance. It is, however, important to speak with an expert when making major financial decisions and planning your future. At Milestone Consulting, our experts are well-versed and highly experienced in the intricacies of spend downs and special needs trusts, and they can help you come up with a plan that’s right for you.

One Comment

  1. Gravatar for Shawkat Sami
    Shawkat Sami

    Any income from settlement as lump sum can be spend on house furniture or debt of credit card. The question is when you report these bills to the social security office, can these bills avoided or it should paid back as overpaid ?

    So social Security Administration they will ask you to pay all these amount even you spend it on excempt resources?

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