How To Keep Medicaid If You Win Compensation From A Personal Injury Lawsuit

When someone's negligence causes injuries, there's no doubt you want to be compensated. But, if you are receiving Medicaid benefits, you may be hesitant to file a lawsuit. Don't be. Even though Medicaid is a means tested benefit, there are several things you can do to keep your Medicaid benefits even if you receive compensation from a personal injury lawsuit. Here's what you need to know to get started.

Understand your resource limit and how it affects your benefits

Your eligibility for Medicaid was determined when you took a means test. This is a comprehensive financial assessment of your cash and countable assets that could be used as resources for cash when liquidated.  Passing the means test meant that you had limited countable resources that fell below the established guidelines set forth by your state and the federal government at the time that you applied for Medicaid.

Any increase in your countable assets, which could include compensation from your personal injury lawsuit if you win your case, must be reported to your case manager who handles your Medicaid documentation. Reports of increases are required if the increases are not spent by the 1st day of the month after you received your compensation or other increases.

Compensation from a lawsuit could cause you to fail the means test

An increase would mean you could lose your Medicaid and any other means tested benefits you may receive, such as food stamps. If you were to receive compensation from a personal injury lawsuit, especially one that is fairly large, it doesn't mean you have to spend the entire amount before the 1st of the following month.

However, you cannot allow your compensation, whether it's from a structured settlement or a lump sum payment, to remain in your bank account after the 1st, because then it counts as countable resources and you will fail the means test. This would mean you will likely lose your Medicaid benefits.

Compensation put into a special needs trust is not considered a countable resource

To change the status of your structured settlement or lump sum payment from being considered a countable resource to one that is not counted, you can put the monies into a special needs trust. This type of trust can be established as a way to protect your Medicaid benefits while enjoying the compensation from your personal injury lawsuit. However, depending on your state laws, the monies in your special needs trust may only be used for certain things, like living expenses and medical-related expenses.

Since the compensation will be in a special needs trust, you won't be able to easily liquidate the monies like you would if you were to buy a vehicle or a house. This is because the trust is managed by another party. This is what changes it from being countable to being non-countable.

If the compensation for your lawsuit is going to be awarded to you as a structured settlement, you may want to consider options to receive the settlement in a lump sum payment. There are lenders who offer structured settlement payouts so you can receive the funds in one lump sum to establish your special needs trust.

Designate someone to be trustee of your special needs trust

Designate a friend, family member or a lawyer to be the trustee of your special needs trust. Make sure it is someone you trust fully, because they will be in charge of how the monies in the trust are spent. Many people in your situation choose to designate more than one person to be trustee. Your trustee(s) should be aware they will need to file taxes for the special needs trust.

Don't assume that you won't be able to continue to receive your Medicaid benefits if you receive compensation from a personal injury lawsuit. Put the compensation into a special needs trust with a lump sum payment so your means test is not affected. Contact a lawyer to learn more about your specific situation.