What do I need to do to keep my SSI benefits after receiving a lump sum settlement?
What is a Spend Down?
The term “spend down” describes the process of spending the excess money received by a SSI benefits recipient down to the maximum allowable resource limits. The current resource limit it set at $2000 for an individual and $3000 for a couple. By spending the excess funds in the month in which they are received, the SSI recipient can remain eligible for SSI benefits. Just know that although a spend down can protect you from losing your SSI/Medicaid, you will likely need to repay part or all of the SSI benefit for the month in which the lump sum is received. This is because SSI considers a lump sum to be income in the month received. Any income not spent in the month received will be countable as a resource in the following month.
When Is a Spend Down Appropriate?
There are strategies that can help an SSI recipient maintain their benefits after receiving a lump sum. You can transfer excess funds into a special needs trust. Its recommended that you contact a local estate planning lawyer about that. In other instances, a spend down might be a better choice. If the amount of the excess resources is nominal or small, its probably better to spend that money rather than to incur the set-up and ongoing administration costs associated with a special needs trust. For example, if you receive a lump sum of $5,000, you can spend $2,000 of that money to bring you back down to the $3,000 resource limit. It may be more difficult to do the same if you received a lump sum of, for example, $100,000 though. A spend down could also be a strong option in a situation where the beneficiary has current need for more expensive items such as a home, a handicap-modified vehicle, or even to pay off debt.
Timing a Spend Down
It is vital and important to figure out a spending down plan before receiving the lump sum. In order to prevent losing your SSI and Medicaid, goods and services must be purchased in the same calendar month in which you receive your lump sum. So, unfortunately, you do not have 30 days to complete the spend down. For example, lets say you receive a lump sum on the 15th of August, the spend down must be completed in 16 days to bring your resources below the maximum limit before September 1.
Prioritizing Items and Services to Purchase
Keep in mind, you cannot recklessly spend down your money. Its important that the funds be spent only on exempt resources and that the items purchased are solely for the benefit of the disabled recipient. There are certain resources that the SSI and Medicaid programs do not count in determining eligibility, including such things as a residence, a vehicle, household furnishings and certain burial arrangements. These are referred to as “exempt resources.” By purchasing exempt assets, it will not count towards the asset limit. Purchasing items for other people is usually considered a gift. Making a gift is not exempt and may cause you to lose your benefit. The following is a list of exempt items that can be bought and allow you to still qualify for SSI:
Purchasing a home; paying off a mortgage on a home; paying rent for that calendar month only; modifying a home to accommodate an individual’s disabilities; home repairs, remodeling, or deferred maintenance expenses
Purchasing home furnishings or appliances
Medical expenses/bills not covered by Medicaid or Medicare
Dental expenses, eye glasses, physical therapy, support services not covered by any benefit program
Education expenses
Entertainment/recreation expenses (books, magazines, movie/concert tickets, sporting events, audio/video equipment)
Vacation travel
Pay an attorney to do estate planning and/or Medicaid planning
Pay off debts
Pre-pay burial arrangements
Personal hygiene
Purchase an automobile, pay for registration and insurance
Purchase clothing
Set aside up to $2,000 for a single person, or up to $3,000 for a married couple, in non-exempt resources, e.g., in savings, checking, etc.
Reporting the Spend Down
The spend down must be reported to Social Security by the 10th day of the month following the month in which the lump sum was received. Here are some guidelines to follow in order to properly prepare for the reporting:
Keep sufficient money in your bank account to repay SSI benefits for the month in which the excess funds were received.
Keep receipts for any and all items or services purchased.
The beneficiary must be on the title to any real property or vehicle purchased with the lump sum.
The beneficiary must be on any auto or homeowners insurance purchased with the lump sum.
Make copies of current bank statements from all accounts.
If you are using a hard check, the hard checks to purchase items and services should clear the beneficiary’s bank account by the last day of the spend-down month. If you are concerned that a check may not clear the account in the month, payment should be made by certified check or a cashier’s check.
Have the bank provide documentation of the bank balance on the first day of the next month to verify the spend down was done successfully.
Lastly, if an individual spends down the lump sum in the month of receipt, but an SSI check or other monthly income is deposited into the account at the beginning of the next month, this might cause the bank balance to go above the non-exempt resource limit. Do Not Worry! This will not be a problem because the SSI check or other monthly income is not counted as part of the resource limit in the month the income is paid to the individual.
In conclusion, spending down a lump sum can be a great option. However, if you spend down all your money, you will not have any monies available in the event of an emergency. Its important that you think and plan accordingly to prepare for the spend down in order to to minimize the ineligibility period and to avoid recklessly blowing through your funds. Although your monies may be gone, if the spend down is done correctly, the beneficiary’s quality of life will likely be improved for years to come through use of the items and services purchased by the lump sum.