Options for Protecting Medicaid and SSI Benefits after a Windfall
By: SJ Chapman, J.D., Bielski Chapman, Ltd.
If you are receiving a lump sum windfall, such as a lawsuit settlement, and you receive either
SSI or Medicaid (or both), you will be temporarily cut off from your benefits until you re-
qualify. You can avoid this cut off by contacting an attorney to take certain legal steps that will
protect your windfall and allow you to maintain your benefits.
What types of benefits are impacted by a windfall?
It’s important to know before you contact an attorney which benefits you receive. SSI and
Medicaid are generally cut off by a windfall. SSDI and Medicare are not.
SSI benefits are paid out to individuals under a certain financial threshold. For unmarried
people, those with less than $2,000 in “countable” assets qualify for SSI. A lawsuit settlement
“counts” as an asset.
Medicaid benefits are either based on your income (household income below 133% of the federal
poverty line) or assets (“countable” assets of less than $2,000 for unmarried individuals).
SSDI benefits are paid out based on employment history rather than their financial resources and
therefore are not impacted by a windfall.
Medicare benefits are generally awarded once someone has been on SSDI for 2 years, or after a
person turns 65 and are not impacted by a windfall.
Your determination letter from Social Security should explain which social security benefits you
receive, but you will have to contact the agency administering your Medicaid benefits to find out
which type of Medicaid you receive.
When SSI/Medicaid recipients receive a windfall, they must report the windfall to the Social
Security Administration within 10 days of receipt and the Illinois Department of Health and
Family Services at annual redetermination. Non-reporting recipients are subject to penalties.
However, if you contact an attorney to protect your windfall and maintain your benefits, your
attorney will affirmatively report the windfall to the appropriate agency along with the legal
steps you took to preserve both your benefits and windfall.
When is a windfall Exempt from Medicaid consideration?
In Illinois, a settlement from a Nursing Home Care Act lawsuit is not considered a “countable”
resource for purposes of evaluating a person for Medicaid eligibility. When a windfall is
received in the form of a settlement from a Nursing Home Care Act case, all Medicaid benefits
will be preserved. However, SSI will still discontinue benefits.
Strategies for maintaining SSI and Medicaid while preserving a windfall
Spending Down Settlement Proceeds
SSI and Medicaid allow a windfall recipient to spend the entire settlement down to $2,000 in the
same calendar month it is received and continue receiving uninterrupted benefits. It is important
to contact a lawyer to assist in this process, because a spend down is time sensitive, and certain
expenditures are not allowed, such as gifts, groceries, or certain housing costs.
Appropriate categories of expenditures include:
- A pre-paid caregiver contract
- A pre-paid funeral contract
- Vacations or travel
- Club memberships
- Home modifications
- Paying off debt
- Vision/Dental care
- Medical equipment such as an enhanced wheelchair
A Pooled Trust
If an individual is under 65, they can contact a Pooled Trust Company to set up a sub-trust and
continue to receive SSI and Medicaid benefits. The Pooled Trust is administered by a non-profit
trustee who makes purchases for the beneficiary out of the trust funds. A trustee may never give
any of the beneficiary’s money to the beneficiary themselves; when the beneficiary wishes to use
their money, they call the trustee to makes the purchase on the beneficiary’s behalf.
This is less expensive than using an attorney to set up a Special Needs Trust. There are time
limits for setting this trust up and maintaining SSI/Medicaid eligibility, so it is important you
contact a pooled trust company as soon as you know you are receiving a windfall.
A Special Needs Trust
A special needs trust, or “SNT,” is a trust that holds a windfall, and is set up by an attorney.
Someone the beneficiary knows personally acts as trustee, and makes purchases for the
beneficiary out of the trust funds. A trustee may never give any of the beneficiary’s money to
the beneficiary themselves; when the beneficiary wishes to use their money, they call the trustee
to makes the purchase on the beneficiary’s behalf.
There are time limits for setting this trust up and maintaining SSI/Medicaid eligibility, so it is
important you contact an attorney for this option as soon as you know you are receiving a
If an individual who receives a windfall is over 65 and in a long-term care facility, Illinois law
requires the person to also purchase an annuity in addition to setting a trust up to cover a certain
period of long term care expenditures.
To protect SSI/Medicaid benefits in the event of a windfall, it is extremely important to start on
these options with the help of a professional.