How to Protect Disability Benefits
The Social Security Administration makes two kinds of disability payments, Social Security Disability Income (SSDI) and Supplemental Security Income (SSI).
Eligibility for SSDI is an earned benefit. It is based on having a disability and paying into the Social Security system through payroll deductions for a sufficient number of quarters. In other words, SSDI eligibility is not based on asset and income limits.
In contrast to SSDI, eligibility for SSI is not an earned benefit. It is based on having a disability and meeting very strict asset and income limits.
Receiving just a one-time payment of $2,000 or more can cause someone to lose their SSI. Some exceptions apply, but gifts, inheritances, and personal injury settlements can all cause someone to lose SSI.
Worse still, SSI also imposes transfer penalties, which means that giving away assets to friends or family members will not protect SSI eligibility. In fact, giving away assets can actually create penalty periods. However, one of the easiest and most beneficial ways to protect SSI eligibility is to establish a Special Needs Trust.
Adam is no longer able to work after being injured in an auto accident several years ago. After receiving a formal determination of disability by the Social Security Administration, Adam started receiving disability payments in the form of Supplemental Security Income (SSI). This is the type of disability payment that imposes strict income and asset limits. Adam was not eligible for the other type of earned Social Security disability payment, which is Social Security Disability Income (SSDI), because he did not have enough work quarters to qualify.
Because Adam receives SSI, he is also eligible for Medicaid in his state. While these two programs provide for Adam’s important basic needs, the highest amount that SSI ever pays is still approximately 25% below the federal poverty level. For Adam, this means that he has many unmet needs and so is in the same position as all other SSI recipients.
Adam’s family would like to help, but they cannot supplement his income or even give him modest sums of money because it will just reduce his monthly SSI payment. Worse still, his family is not even able to make direct payments for any of Adam’s food or shelter costs instead of giving him money. This is because a portion of those direct payments will still count as income to Adam and reduce his already small SSI check.
Shortly after his accident happened, Adam hired an attorney to recover damages from the responsible driver. His case will soon be settling after several years of litigation, and Adam expects to receive what most people would consider a sizable settlement. Luckily for Adam, his attorney understands from past experience that this settlement will cause Adam to lose his SSI and Medicaid. His attorney recommends that Adam establish a Special Needs Trust so he can receive his settlement proceeds in a way that will preserve his eligibility for SSI and Medicaid.
After speaking with a proposed Trustee and learning more about how a Special Needs Trust works, Adam decides to establish a Trust. When his case finally settles in the next month or so, Adam’s settlement will be paid to a Special Needs Trust established for his benefit instead of being paid to Adam personally. Even though the settlement might seem sizable now, it will quickly be gone if not managed properly for Adam’s benefit.
Adam made the right choice when he decided to maximize his resources. His Special Needs Trust will preserve his eligibility for SSI and Medicaid while stretching the life of his settlement as long as possible. Adam’s SSI and Medicaid will continue to provide for his important basic needs while his Special Needs Trust will supplement his needs over and above the basics that are provided by SSI and Medicaid.