Receiving a legal settlement or inheritance can provide financial relief, but without proper planning, it may jeopardize critical public benefits such as SSI, Medicaid, and other disability-related support programs. This webinar will guide individuals with disabilities, their families, and their attorneys through the essential legal strategies to preserve public benefits while maximizing financial security.
An inheritance, insurance payout, or settlement should be a welcome financial boost for a person with disabilities. But when it comes to means-tested government benefits like Supplemental Security Income (SSI) or Medicaid, sudden windfalls can turn into financial disasters—unless families and advocates know how to respond.
In the latest of our lunch-and-learn webinar series, Michele walks through the critical steps that must be taken when someone with a disability receives a financial windfall. Whether it’s a $1,000 gift or a six-figure inheritance, these funds must be handled carefully to avoid disqualifying the beneficiary from essential support.
Michele’s practical approach offers legal insight, real-world examples, and a variety of tools available to protect the funds, the benefits, and most importantly the people involved. With proper planning, these windfalls can lead to a future of financial freedom.
Not all government programs are alike. SSI and Medicaid are “means-tested” benefits, meaning eligibility is based on income and assets. For these programs, owning even a modest amount of money—usually just $2,000 in countable resources—can trigger a loss of benefits.
Compare that to programs like SSDI (Social Security Disability Insurance) and Medicare, which are entitlements earned through work history. These benefits are not affected by financial windfalls.
This distinction is critical. While someone may keep SSDI even after receiving a large inheritance, they could lose Medicaid or SSI unless proper planning is in place.
The Social Security Administration treats income differently than the IRS. When evaluating eligibility for SSI, there are four categories:
Unearned income causes a dollar-for-dollar reduction in SSI after the first $20. Worse, if the funds aren’t spentdown by the end of the month they’re received, they count as assets the next month—and can trigger benefit termination.
Before taking any action with inherited or gifted funds, it’s crucial to determine who has legal authority to act.
Power of attorney (POA) can be another option, provided the person had legal capacity when the POA was signed. Importantly, only a court—not a doctor—can determine legal incapacity.
For smaller windfalls, the solution may be as simple as spending down the funds before the end of the month in which they’re received. Purchases that improve quality of life and do not count as resources may include:
Timing is everything. Recipients must report income and asset changes by the 10th of the month following receipt—regardless of when in the prior month the money was received.
When a simple spend-down isn’t enough—or isn’t the right solution—several tools are available to receive the funds while preserving benefits.
Achieving a Better Life Experience (ABLE) accounts are powerful savings tools for people whose disability began before age 26 (soon increasing to age 46 in 2026). Contributions up to $19,000 per year (2025 limit) can be made without affecting SSI or Medicaid eligibility.
ABLE accounts allow investment growth, tax-free withdrawals, and can hold up to $100,000 without affecting SSI. Best of all, they are easy to open and use—especially in states like Michigan with user-friendly programs.
For windfalls under about $400,000, a pooled trust managed by a nonprofit is often the most cost-effective option. These trusts meet federal requirements for exempt treatment and provide professional management at a lower cost than custom trusts.
Funds are pooled for investment purposes but managed in subaccounts for each beneficiary. Upon the beneficiary’s death, the nonprofit often retains remaining funds (or, in some cases, they go to Medicaid payback).
For larger windfalls, a custom first-party special needs trust may be the better fit. This type of trust is individually drafted and allows the appointment of a trusted professional or family member as trustee.
These trusts offer more control, more flexibility, and greater customization—but they come with higher legal and administrative costs and must include a Medicaid payback provision.
Michele illustrated these tools through three fictional (but common) versions of “Charlie”:
In each case, the key takeaway is the same: you have options, but you must act quickly and correctly.
One of the most common and costly mistakes families make is trying to “hide” the money—giving it to a relative or holding it informally. This is considered a disqualifying transfer and can result in months or even years of lost benefits.
Another mistake is liquidating inherited retirement accounts without proper tax and disability planning. A well-structured trust may allow a disabled heir to take lifetime withdrawals, potentially saving hundreds of thousands in taxes.
While this webinar focuses on what to do after a windfall occurs, the best planning happens beforehand. Naming a person with disabilities directly in a will, trust, or life insurance policy—without protective language—can cause unnecessary hardship.
Instead, work with a qualified special needs planning attorney who can guide you in establishing a third-party special needs trust, naming the right beneficiaries, and crafting a plan that protects eligibility while enhancing quality of life.
This webinar is packed with examples, explanations, and answers to common questions about managing windfalls in special needs planning. Whether you're a parent, advocate, or professional, this session offers invaluable insights.
For more information, explore our full library of webinars, articles, and resources designed to help you make informed, compassionate decisions for your family. When you are ready, give us a call at 586-803-8500 or email michele@milaw.center, we’d love to hear from you.
