Introduction
One of the most important facets of settlement planning is to ensure that needs-based government benefits like Supplemental Security Income (SSI) and Medicaid are protected once a plaintiff receives a legal recovery.
In general, clients have four options on how to handle their need-based government benefits after receiving a settlement while on Medicaid and SSI.
Option 1: Lose the Government Benefits and Reapply in the Future
The first option is to receive the settlement and opt to lose those benefits.
If an individual receives more than $2,000 from a settlement, or if the settlement causes them to have liquid assets over $2,000, then they’re going to be ineligible for SSI and Medicaid for at least a certain period until those assets are depleted to under $2,000.
At that point, they could reapply for SSI and Medicaid.
Option 2: Settlement Spend-Down
If a client receives a settlement and spends down the funds on what Medicaid and SSI consider to be “exempt assets” in the same calendar month in which the settlement funds were received, the client can remain eligible for needs-based government benefits.
Clients need to keep in mind that this is not a 30-day window; it is based on a calendar month. For example, if they get a settlement of $25,000 on June 1st, they have until July 1st, the first day of the next month, to spend the money down on exempt assets. If they get a settlement on June 20th, they still only have until July 1st to make sure their liquid assets are under the $2,000 limit.
According to the Social Security Administration, exempt assets include the following:
- A client’s home (we covered this in a post addressing the question, "Can I own a home on SSI?")
- One vehicle used by the client or a member of the household
- Household goods and personal effects
- Life insurance policies owned by the client with a combined face value of $1,500 or less
- Burial plots for the client and his/her immediate family
- Burial funds of up to $1,500 each for the client and the spouse
- Property used by the client or the spouse for business purposes
- Money or property under a Plan to Achieve Self-Support (PASS) for disabled clients
- Up to 100,000 in an Achieving a Better Life Experience (ABLE) account established through a state ABLE program
Option 3: Special Needs Trust
If the settlement money is too much for a client to spend down in the same calendar month they received them, then a special needs trust is typically the best option.
A special needs trust is a trust where the settlement funds can be stored and used for certain things for the beneficiary. The money inside the trust is not counted against the beneficiary for eligibility purposes for Medicaid and SSI. The client can continue receiving SSI and Medicaid benefits, and the funds inside the trust can be used for their benefit.
Clients can spend the funds from the trust on many things that are for their primary benefit other than food and shelter (which is what SSI is meant to pay for). Read more about special needs trust spending rules.
Option 4: ABLE Account
The last option is called an ABLE account. ABLE accounts are more restrictive in terms of who can qualify: clients must have been deemed disabled before the age of 26 to be eligible for an ABLE account. (As of January 1, 2026, the age limit increased to include anyone who was deemed disabled before the age of 46).
ABLE accounts are similar in many ways to a special needs trust. The funds inside the ABLE account can be used for the beneficiary’s needs, and the funds in the ABLE account are considered exempt assets, which allows the client to stay on SSI and Medicaid benefits. Explore our guide on special needs trust vs. ABLE account for further insights.
In Summary
Settling clients who want to protect their needs-based government benefits have four options:
1) Accept the settlement money and lose the benefits for a time.
2) Spend the settlement money down on certain items in the same calendar month they receive the legal recovery.
3.) Establish a special needs trust (if eligible)
4.) Establish an ABLE account (if eligible)
Depending on the client’s situation, they can also combine several of the above options to preserve their SSI and Medicaid benefits after receiving the settlement funds.
If you have a client who receives government benefits (or if someone in the client’s household receives government benefits), give us a call.
We’ll discuss and help your client evaluate each of these options and ensure that they’re able to maintain eligibility for their needs-based government benefits after they receive their legal recovery. Book a call to learn how expert government benefits planning can help you.
