By: Barbara A. Isenhour
and Sean R. Bleck
Most attorneys are
familiar with the government benefit programs for their disabled clients.
SSI and Medicaid are benefits available to the disabled. A settlement can
be placed in a special needs trust to preserve eligibility for these
benefits. There are other government benefits that are available to
families, not because they are disabled but because they are poor.
Your clients may be
receiving very valuable cash, food, medical and housing benefits based
upon their low income status. For these non-disabled, low income clients,
a special needs trust is not an option to protect their settlement and
preserve their government benefits. Because these benefits are based upon
the family’s assets and income the benefits may be lost if the family
receives a lump sum or a structured personal injury settlement.
At a minimum, clients
need to be warned in advance how a settlement will affect their benefits
so they can take that into account in weighing whether to pursue
litigation in the first place. This information is also necessary in
order to evaluate whether an offered settlement will be adequate for your
client. If there are strategies to minimize the loss of these benefits
they should also be explored with the clients before any settlement is
finalized.
This article addresses
the most common government benefits for low income, non-disabled
individuals, how a settlement will impact those benefits and what
strategies, if any, can be considered to minimize the impact on future
eligibility. To illustrate these issues it is helpful to look at a
hypothetical low income family.
Susan is a 30 year old
single mother with two children, Lilly, age 4, and Tim who is 6. Tim is
disabled and receives SSI. Susan and Tim were in a car accident and have
been offered a settlement of $400,000 to Tim and $200,000 to Susan.
Tim receives $623 from
SSI because he is a disabled child living in a low income family.
Tim gets Medicaid automatically with his SSI grant. Tim’s government
benefit issues are easy to solve. Because Tim is disabled his settlement
of $400,000 can go into a special needs trust to preserve his eligibility
for SSI and Medicaid (but see below how Susan’s portion of the settlement
may cause a different problem for Tim’s SSI benefits).
Susan’s circumstances
are much more complicated. Susan and Lilly receive cash assistance from
the TANF program (Temporary Assistance to Needy Families). TANF is
a cash assistance program for families with dependent children. In most
cases the benefit program cannot extend beyond five years but there are
exceptions to this rule, including when there is a disabled child in the
home. Susan receives $440 per month for an assistance unit of 2. (Tim
is not included in the assistance unit because he receives SSI income
separately.)
With TANF, Susan
automatically receives Medicaid health coverage for herself and
Lilly. The household receives food stamps of $325 per month. The
Food Stamp Program is actually a debit card that can be used at most
grocery stores to purchase food items. The amount of food stamps a
household receives depends upon several factors including the number of
people in the household, household income, and shelter expenses. Susan has
a Section 8 certificate from the housing authority that subsidizes
her rent for her 2 bedroom apartment. Susan’s rent is 30% of her
household income or about $300 per month. If Susan had to pay market rent
for her apartment it would be $800 per month so this benefit is worth $500
a month to Susan.
If you added up the
family’s TANF cash benefit, Tim’s SSI benefit, the food stamps, the
medical expenses paid by Medicaid and rent saved with the Section 8 rent
subsidy, the market value of Susan’s benefits is over $2,500 per month or
$30,000 per year. How will the receipt of a $200,000 settlement for Susan
impact her household benefits for herself and her two children? Is there
any advantage or disadvantage of structuring the settlement amount? At
Susan’s age the structure would pay her $900 per month for her lifetime.
TANF:
The TANF program has an asset limit of $1,000 plus an additional $3,000 in
a savings account. A home, household furnishings and a car worth less
than $5,000 are exempt assets. Unearned income paid to Susan, including
payments from a structure, will reduce her cash benefit dollar for dollar.
The $200,000
settlement will disqualify Susan from TANF because her assets will exceed
the $1,000 asset limit. A structure paying $900 per month will also
disqualify her from receiving TANF because the monthly payments will
exceed and replace the TANF cash assistance grant. Losing TANF cash
assistance for Susan and Lilly will cost the family $440 per month or
$5,280 per year. Some parents also receive a valuable child care subsidy
from TANF if they go back to work which would also be lost if Susan loses
her TANF eligibility.
Food Stamps:
The food stamp program has an asset limit for a non-disabled household of
$2,000 and $3,000 for a household with a disabled or elderly member.
Again, Susan’s receipt of $200,000 would put her over the asset limit so
the family will lose their $325 of food stamps every month. The Food
Stamp program does not count a house, one car of any value and household
furnishings in determining eligibility. If Susan has a structure paying a
fixed monthly amount, the payments are treated as "income" that could
reduce or eliminate her food stamp benefit depending upon the amount.
Medicaid:
If Susan loses her TANF she will also lose her Medicaid coverage. There
is another Medicaid program for children under the age of 19, called the
Medically Needy Children’s program. This program does not take into
account a parent’s assets. Eligibility is based only on the parents’
income. As long as the household income is below 200% of the Federal
Poverty Level ($2,767 per month for a 3 person household) Lilly and Tim
would qualify for this Medicaid program if they lose their Medicaid
through TANF and SSI. This program will not cover Susan, however, so she
will need to purchase a private health insurance policy if she wants
medical coverage.
Tim’s
SSI: Until Tim is 18, his custodial parent’s
assets and income affect his eligibility for SSI. If a single parent’s
assets exceed $2,000, or if the parent’s income exceeds the maximum amount
allowed for the parent (depending upon number of children and whether a
one or two parent household), the disabled child will lose his or her SSI
benefits. A special needs trust will not solve this problem because it is
Susan’s assets and income that are causing the problem, not Tim’s.
Section
8: The Section 8 Program does not have an asset
limit to qualify for a rent subsidy. If Susan receives a lump sum
settlement, that will not disqualify her from this program. But if Susan
receives a monthly structure payment, that is income to her. Rent is
calculated based upon her monthly income. If Susan receives a monthly
structure payment of $900 her rent will be approximately one-third of that
amount or $300.
Are
there any solutions for Susan? If you add up
all of the potentially lost benefits for Susan, her settlement could cost
her a substantial amount.
There are some
strategies that Susan could consider to minimize the loss of benefits but
some of the proposed strategies may protect one benefit but not another.
- Trust:
This is not an option for Susan to protect any of her benefits.
Again it only with disabled individuals that a trust can protect their
SSI and Medicaid benefits.
- Give Away
Assets: If Susan gave away her $200,000
settlement she would be ineligible for TANF for two years and ineligible
for food stamps for one year. For Tim’s SSI, there is no transfer
penalty if a parent gives away assets to come within the asset limit
applicable to the parent. Giving away assets will increase Susan’s rent
under the Section 8 program for two years.
- Purchase
Exempt Resources: If Susan purchased a home,
household furnishings, a car worth less than $5,000, she could convert
countable resources into exempt resources. TANF, SSI and the food stamp
program would all exempt a home if Susan can afford the purchase price
with a lump sum settlement. If the goal is to purchase exempt resources
with a settlement, it would not be helpful to structure the settlement.
- Structure:
If Susan’s only concern is protecting Tim’s SSI eligibility until he is
18, then a structure may solve that problem. It would be important to
make sure the monthly payments to Susan will be less than the maximum
income allowed for the parent. Structure payments above a certain
amount can also reduce Tim’s SSI benefit dollar for dollar. The
structure does not solve the TANF or food stamp issues and 30% of the
structure will be required as rent under the Section 8 program.
- Spend Down
Assets: Susan could decide that the best
alternative for her family is to go off of all of their benefits and use
her settlement to support her family. When the money is again down to
$2,000 she can reapply for SSI for Tim and food stamps for the
household. When her assets are down below $1,000 she can apply for TANF
for herself and Lilly.
There is no cookie
cutter formula to address the impact of a settlement on a low income
client. Every case is unique in terms of the mix of government benefits,
the practical options available to the client and the client’s reaction to
losing certain benefits. The important thing is to discuss these
complexities with your client early in the development of the case and
review options to minimize the loss of those benefits. Our law firm is
available to consult with personal injury attorneys on these complex
government benefit issues.
This
article was also published in the April 2007 issue of Trial News
published by the Washington State Trial Lawyers Association.
