A Spend Down:

When a Special Needs Trust Isn’t the Best Option

WHAT IS A SPEND DOWN?

For an individual receiving Supplemental Security Income (SSI) and/or Medicaid, a “Spend Down” literally refers to spending excess money that he/she receives within a calendar month to maintain eligibility for public benefits. This is allowable because SSI determines a lump sum of money to be considered income only in the month received if it is spent within that same calendar month (SI 01110.600). In most states, that means that on the last day of the same calendar month that the funds were received the recipient can have not a penny more than the resource limit, which is generally $2,000 for an unmarried individual and $3,000 for a married couple. For example, if John Doe, an unmarried individual, is on SSI and receives $28,000 dollars on September 12th, he must spend down his total resources to $2,000 dollars before October 1st.

WHAT CAN A RECIPIENT SPEND THEIR FUNDS ON?

It is often assumed that a recipient of SSI and/or Medicaid must make rapid and irresponsible purchases when utilizing a Spend Down. This is incorrect. A Spend Down can allow individuals to plan and purchase a variety of items that would improve their quality of life now and in the future. Some purchases may include:

Pay off existing debts. Special scrutiny is applied if paying back a loan from a family member or friend. The loan must be a bona fide note with a realistic expectation of repayment at the time the loan was provided. We would highly recommend consulting a Trust Officer or a Special Needs Planning Attorney if seeking to pay back a loan.
Purchasing a home or paying off all or part of a mortgage on a home. (Note: The recipient must be on the title or have a life tenant agreement.)
Paying rent for that calendar month only
Home repairs, remodeling, deferred maintenance expenses, or Modifying a home to accommodate an individual’s disabilities (Note: The recipient must be on the title or have a life tenant agreement.)
Purchasing home furnishings or appliances
Pay an attorney to do estate planning and/or Medicaid planning
Medical expenses/bills not covered by Medicaid or Medicare
Educational expenses
Entertainment/recreation expenses
Vacation travel
Pre-pay burial arrangements
Purchase an automobile including registration and insurance (Note: The recipient must be on the Title.)
Personal products or services such as clothing, hygiene products, hair styling, etc.

WHAT LIMITATIONS DOES A RECIPIENT HAVE WHEN UTILIZING A SPEND DOWN?

There are limitations on what can be purchased. A recipient cannot purchase items for other people or give money to other people. This is referred to as a resource transfer at less than market value and could cause the individual to be ineligible for public benefits (SI 01150.001, SI 01150.007).

There are certain exempt resources that a recipient can purchase. Exempt resources can be defined as items that will not impact a recipient’s eligibility for SSI and/or Medicaid. Some examples of this include but are not limited to:

One home
One vehicle*
Household furnishings
Certain burial arrangements.

For an exhaustive list, please consult SI 01110.210 located at
https://secure.ssa.gov/poms.nsf/lnx/0501110210. It is important to note that even if a vehicle is not operational, a recipient can still only own one (SI 01130.200).

*Vehicle rules vary by state discuss with counsel for further details.

SENDING NOTICE TO APPROPRIATE STATE AGENCIES

A Spend Down must be reported to the appropriate agency: the local Social Security Administration (SSA) office and/or the local state Medicaid office. Furthermore, it must follow certain criteria addressed in this section.

The first step is determining which agency to notify. When it comes to eligibility for SSI and/or Medicaid there are three different types of states: 1634, 209(b), and SSI criteria states. If the recipient resides in a 1634 state they must notify the following agency based on the benefits they receive:

Recipient receives SSI and/or Medicaid = send notice to his/her local SSA office.
Recipient receives SSI only = send notice to his/her local SSA office only
Recipient receives Medicaid only = send notice to his/her local state Medicaid office.

If the recipient resides in a 209(b) state or SSI criteria state, they must notify each individual agency based on the benefits they receive. For example:

Recipient receives SSI and Medicaid = send notice to his/her local SSA office and their local Medicaid office.
Recipient receives SSI only = send notice to his/her local SSA office only
Recipient receives Medicaid only = send notice to his/her local Medicaid office only

If a recipient does not know where the address of their local agency office, a simple Google search of that state’s Medicaid office should provide them with a way to locate the office closest to them. For the local SSA office please use this link: https://secure.ssa.gov/ICON/main.jsp.

The second step is ensuring that the notice is sent correctly. As well as abiding to the limitations addressed in the previous section, it is important that the spend down is reported accurately, if not the recipient may lose eligibly. The letter to the appropriate agency should include the following:

Date
Full Legal Name, Contact Phone Number and Address, Social Security Number
A statement that the recipient utilized a Spend Down and that the appropriate documentation is enclosed according to SI 01150.007.
Receipts for all transactions
All bank statements for that entire calendar month.
All bank statements for the following month confirming that the funds were successfully spent down.

It is important to keep receipts for all the purchases made in the month that the funds for the Spend Down were received. Keep in mind an individual recipient is only allowed to have a total of $2,000 or $3,000 for a married couple in resources. Please refer to SSA’s SPOTLIGHT ON RESOURCES -- 2020 Edition at the end of this text for more information on resource limits.

Prior to sending the documents to the appropriate agency, the recipient should consider sending them certified mail with a signature confirmation to ensure that the documents arrive in a timely manner and are received. Documents have been known to get lost in the mail or the SSA states, “they did not receive the documents.”. To prevent your documents from being lost forever, make sure you make a copy of all the documents prior to sending. We highly recommend that if a recipient is uncomfortable with providing the agency with notice that they should contact his/her Trust Officer or a Special Needs Planning Attorney using the information provided in the next section.

I HAVE CONCERNS OR QUESTIONS, BUT I DON’T KNOW WHERE TO FIND THE ANSWERS?

A great place to start is the sources listed at the end of this text which provides more detailed information. Searching the SSA’s Program Operating Manual System (POMS) is the primary source of information used by SSA employees to process claims for Social Security benefits. However, it is always a good idea to consult a Special Needs Planning Attorney which can be located at either of the websites below:

Are you already working with CPT Special Needs Trusts? Call our main line at 877.695.6444 and ask to speak to your Trust Officer, who may be able to assist you.

DISCLAIMER: The information provided by CPT is for informational purposes only and is intended to be used as a non-legal guide prior to consultation with an attorney familiar with your specific legal situation. CPT is not engaged in the practice of law or in rendering legal advice or counsel. No such legal advice or counseling is either expressly or impliedly intended. This form is not a substitute for the advice or counsel of an attorney. If you require legal advice, you should seek the services of an attorney. © 2017 CPT All rights reserved.