Litigators, Do No Harm: Eight-Point Checklist for Minimizing Loss of Public Benefits for Plaintiffs Receiving a Settlement or a Judgment
November 1st, 2021
You worked hard to achieve a good result for your client. Your client is now due – or already may have received – a settlement or a judgment to compensate them for some harm or loss. But will that recovery threaten your client’s eligibility for means-tested benefits for which there is an income or resource test or both? This checklist will help you decide whether to enlist an attorney with expertise in special needs planning to design and implement a plan to maximize the recovery and protect public benefits.
Has there been a disability determination?
Special needs planning will benefit clients who have been determined by the Social Security Administration (SSA) to be disabled. Your client should provide you with details about benefits. If documents are not at hand, your client can get a Social Security Benefit Verification letter by following these directions, or your client could sign a Consent for Release of Information to permit you to get that information directly from the SSA.
Does your client receive SSI or Medicaid?
Is your client with a disability receiving Supplemental Security Income (SSI)? Or Social Security Disability Insurance (SSDI)? SSI and SSDI are very different programs, and individuals confuse them, often simply reporting they are “on disability.” Even more confusing, your client could receive both SSI and SSDI or maybe the Childhood Disability Benefit for adults (CDB). The Benefit Verification letter will confirm which benefits are at issue.
SSI is available to an individual who has limited income, limited resources (less than $2,000 in countable resources), and a disability severe enough that they cannot earn an average of $1,350 a month in 2022. (Different rules apply for statutorily blind individuals.) For SSI, there is no requirement of any previous work history.
The maximum SSI benefit in 2022 is $841 per month, and that benefit is at risk if your client receives and holds onto the settlement funds (or any other “excess” assets). And just transferring the plaintiff’s recovery to another individual for safekeeping is not the solution if SSI is involved because of the SSI transfer penalty.
And don’t confuse Medicare and Medicaid. Like SSDI and SSI, they are not the same. Maine automatically provides Medicaid (called MaineCare) to those who receive SSI. Typically, MaineCare is far more important benefit than SSI. For an individual with disabilities, MaineCare provides medical insurance. It may provide case management, community support, housing, supported employment, assistive technology, durable medical equipment, transportation, day programs, and respite.
The rules for all means-tested programs vary, and they can and do change. Our firm collects details about our clients’ current benefits with our Checklist of Public Benefits which we update every year. Contact us if you would like a copy.
Does your client receive only SSDI and Medicare?
In contrast to SSI, SSDI is an “entitlement” program. Workers, employers and the self-employed pay for Social Security and Medicare benefits through payroll taxes which are deposited into a special fund. This is an insurance model rather than a welfare model. Medicare coverage kicks in for most SSDI recipients 24 months after the first month they are eligible for SSDI. If your client only has SSDI and Medicare, there may be no need to involve a special needs planner.
If your client has Medicare or if they will receive Medicare in 30 months for a reason separate from disability, you must consider the expectations of the Centers for Medicare and Medicaid Services (CMS) for future medicals and a Medicare set-aside arrangement. For individuals with means-tested benefits plus Medicare, we “nest” the set-aside arrangement within a special needs trust to retain eligibility for SSI and MaineCare.
Are there other means-tested benefits to consider?
Your client may have other means-tested public benefits. Examples include SNAP (food supplement), housing assistance (including Section 8), LIHEAP (heating assistance). The rules for all means-tested programs vary, and they can and do change. If your client does not have SSI and MaineCare but has other means-tested public benefits, it sometimes makes sense to forfeit those, depending on the client’s goals, the amount of the settlement, and the public benefits at issue.
How old is your client?
Did your client have a disability that started before age 22? Did the disability begin before age 26 (even though it may not have been determined by the SSA until later)? Is the client under age 65? All of these ages are different eligibility thresholds (for CDB, for an ABLE account, and for a self-settled special needs trust). There are several strategies for special needs planning, and most of them are age-dependent.
How much will your client receive?
If your client will receive an amount that is modest enough that they can sufficiently spend-down the sum within the month of receipt, that plan may be sufficient to retain eligibility for benefits.
If your client has more than they can reasonably spend down and is under age 65, a special needs trust can be considered. The client cannot be the trustee, and the trustee must have sole and absolute discretion regarding distributions from the trust.
- If the client is not receiving enough to justify the cost of an individual, self-settled special needs trust (called a first-party trust or a d4A trust), they might establish a sub-account at a pooled disability trust like the Maine Pooled Disability Trust or the Commonwealth Community Trust.
- But if the client prefers to hand-pick the trustee, the client (or the client’s parent, grandparent, guardian, or a court) will work with a special needs planner to establish an individual, self-settled special needs trust.
When the client with disabilities who is under age 65 transfers assets to the trust (whether pooled or individual), the transfer will not trigger the SSI transfer penalty, and the trust assets will not be countable for SSI or MaineCare eligibility.
If the settlement will be structured, the funds must be payable directly to the trust in order to maintain eligibility for means-tested public benefits.
Depending on the age when the client’s disability began, any of these strategies can be coupled with and complemented by an ABLE account. Up to $16,000 can be transferred to an individual’s ABLE account in 2022.
What must be reported to the public benefits agencies?
In brief, all of it. An SSI recipient must report any changes that may affect eligibility for benefits no later than 10 days after the end of the month in which the change occurred. For MaineCare benefits, the reporting period is just 10 days from the change. Your client should plan to provide a paper trail of what funds were received, receipts documenting any spend-down, a copy of paperwork establishing and funding (i) an ABLE account or (ii) a sub-account at a pooled trust or (iii) the trust agreement that established the individual special needs trust, and then confirmation that the client now has limited assets (less than $2,000 to keep SSI and less than $10,000 for MaineCare).
When should you involve a special needs planner?
As soon as possible. Maine Elder Law Firm will meet with your client after an introduction from you. We confirm the public benefits the client receives or for which the client wants to become eligible. We explain eligibility and determine whether means-tested benefits are at risk. We design a plan to maximize the settlement for the client and retain critical public benefits. We guide the client through the strategies elected, whether an ABLE account, spend-down, and/or a special needs trust, and, if appropriate, prepare the trust agreement to establish an individual, self-settled special needs trust. We provide guidance on funding the trust. We communicate with the SSA and/or DHHS on behalf of the client to ensure that the reporting requirements are satisfied. We advise on future reporting for tax purposes. We can provide advice to the trustee regarding trust administration, assuming no conflict with the client.
Let us know if we can help you do no harm.