The Settlement Alliance

Will a Spend Down Save Your Client's Benefits?

Will a Spend Down Save Your Client's Benefits?

Aug 1, 2016

People who rely on public benefits to meet their medical needs can run into trouble if they receive a settlement. When determining eligibility for basic Medicaid and/or Supplemental Security Income (SSI), assets are typically limited to $2,000 for individuals or $3,000 for a married couple. For those on public benefits who receive a settlement, a special needs trust may help protect those benefits. However, in some cases, a spend down might be a better option.

Special Needs Trust vs. Spend Down

While a special needs trust can in some instances allow your disabled client to enjoy the proceeds of their settlement without jeopardizing benefit eligibility, the expense of setting up and administering a trust may not make sense if your client’s settlement is relatively small or if your client needs to make major purchases to accommodate their disability (e.g. a house, a handicapped-accessible vehicle, etc.). Luckily, certain assets are exempt from Medicaid and SSI eligibility limits. These types of assets can vary from state-to-state, but typically include the beneficiary’s house, certain household goods, an automobile, and personal items such as clothing, shoes, etc. Spending down the settlement proceeds on exempt goods and services could be the answer to meeting your client’s immediate needs, while maintaining public benefit eligibility, especially if your client is receiving Medicaid paid nursing home care or over the age of 65 in a state that chooses to impose a penalty for transfers into a special needs trust.

The Spending Plan

If your client is considering a spend down, a spending plan should be developed before your client receives the settlement proceeds. Your client’s caseworker or local agency is a good resource for providing the exact guidelines that exist within your client’s state or jurisdiction. Generally speaking, allowable expenses can include, but are not limited to:

  • Home repairs to accommodate the beneficiary’s disability
  • Estate planning costs
  • Funeral and burial arrangements
  • Automobile purchases
  • Clothing
  • Entertainment
  • Travel
  • Furniture and home furnishings
  • Eye glasses
  • Fitness equipment
  • Non-food grocery items
  • Certain other goods and services not otherwise covered by Medicaid/Medicare, including medical expenses, dental work, and over-the-counter medications

Funds should only be spent on exempt goods and services purchased for the sole benefit of the beneficiary. Purchasing goods and services for anyone other than the beneficiary or giving away the funds carries the risk of program penalties or even worse, a loss of benefits. To prevent unnecessary issues, your client should keep any relevant receipts and/or records to demonstrate that spend down rules have been properly followed.


Goods and services must be purchased within same calendar month that the lump sum settlement is received. For instance, if the lump sum is received on March 3, your client has 28 days to complete the spend down. If the lump sum is received on March 23, your client has 8 days to complete the spend down. Regardless of the date of receipt, the spend down must be completed prior to the first day of the following month—that’s why the spending plan is a key step in the spend down process.

Reporting Requirements

Your client must report their settlement award to Social Security by the 10th day of the month following physical receipt of the funds (note: some state Medicaid agencies may have earlier reporting requirements). While in some states, certain benefits might be suspended for the month in which your client accepts their award, if the spend down is handled properly, they can typically re-qualify for benefits the following month.

Deciding how to handle settlement proceeds is a major decision that should not be taken lightly. An expert settlement planner can help walk your client through all of their options and can ensure that the appropriate guidelines are being followed. For more information, contact The Settlement Alliance at (855) 284-3876 or using our online form.
Categories: Spend Down

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