No Good Deed Goes Unpunished: What Your Client Needs to Know about Crowdfunding if Your Client has SSI or Medicaid
Crowdfunding is a method of online fundraising that allows people to raise money for any purpose. Anyone can start a fundraising campaign for themselves, a friend, a family member, etc. Several companies now operate in this space, GoFundMe being the most well-known, providing an electronic platform to fundraise from and facilitating the transactions. According to Go Fund Me, approximately one-third of their campaigns in 2017 were used to raise money to pay medical bills. With the cost of healthcare on the rise and medical debt being the leading cause of bankruptcy, it is no surprise that so many (even those who can afford health insurance) need the assistance of generous friends, family members, and benevolent strangers when the unexpected happens. Despite the recovery you secure for your client, settlements are not always enough to take care of lifelong needs resulting from an accident. There is a strong possibility your client will turn to online crowdfunding when things get tough.
Crowdfunding is a blessing for those in need, but it can also be a double-edged sword if your client has government benefits. If your client has means-tested benefits such as SSI, Medicaid, food stamps, or Section 8 housing assistance, to name a few, the funds raised in their honor will likely be a countable resource. If so, crowdfunding will probably result in disqualification from those benefits until the funds are spent down. Unfortunately, it probably will not take long because the cost of private healthcare is so much more expensive than utilizing Medicaid. Soon the client will be back on their benefits, but the money donated to them will be gone and probably will not have achieved the intended positive impact for your client. But with a little planning, it doesn’t have to be the case. Done properly, a client can maintain their benefits and use the donated funds to supplement those benefits rather than replace them temporarily.
Why Does Crowdsourcing Cause My Client to Lose His or Her Benefits?
For public benefits purposes, the general rule is that income and assets are countable unless the fall within certain exclusions set by rule. If the client’s income and/or assets exceed the caps for their benefit programs, they will lose their benefits. Both SSI and Medicaid exempt one vehicle and one (residential) home, which takes care of the largest, and arguably most important, assets most people own. SSI excludes these resources up to any value, and although some state Medicaid programs exclude these items only up to a certain limit, most do not apply a limit. Household and personal effects are also generally excluded so long as they are not held solely for their value. For example, a diamond ring you wear every day is excluded (not countable), where as a diamond you keep in a safe and plan to sell is not excluded (countable).
Cash, being the most liquid of assets, is always countable, and that’s usually where people get into trouble. There are some misconceptions, however, about how crowdsourced funds may be viewed while they remain in whatever platform the campaign organizer has selected. At the time of this article, the POMS (the Social Security Administration’s manual for the SSI program) has not been updated to discuss crowdfunding. The most relevant provision discusses unearned income (this includes gifts and fundraising) which states that unearned income is counted when it is “received by the individual; credited to the individual’s account; or set aside for the individual’s use.” Interpreted broadly, the funds could become countable as soon as the donation is completed because they are essentially earmarked for the person set to receive them. Fundraising done for the injured person and his or her family does not avoid this problem. If the injured person is a minor, the answer is clear: any money received by the parents is deemed to the child. If the injured person is an adult, the answer is less clear, but the SSA’s policy is that joint accounts are counted 100% against the SSI recipient.
The response from Medicaid varies state to state. Some Medicaid programs are closely scrutinizing the accounts and what they were spent on, and some Medicaid manuals have issued crowdfunding-specific provisions. In Wisconsin, crowdfunding accounts are countable to the extent the funds are available the person with Medicaid and counted as unearned income as the funds are withdrawn. Any withdrawn funds retained into the following month becomes an asset. Kansas takes a different approach, counting crowdfunding contributions if the person making the donation expected to receive something in return. Contributions of less than $50 that are purely gratuitous in nature are exempt as resources. Alaska Medicaid counts income from crowdfunding unless it goes directly to a vendor. It is important to keep in mind, however, that in most states qualifying for $1 of SSI automatically qualifies the person for Medicaid. Even if Medicaid does not count the crowdfunding account, the Social Security Administration might, resulting in a loss of SSI. If SSI is lost, so too will the person’s Medicaid be lost unless the person has some other means of qualifying directly.
The Risks of Not Reporting
Commonly, there are two questions which naturally get asked regarding this:
- What if I just don’t tell Medicaid about the Go Fund Me? How will they know?
First, anyone who has public benefits has an obligation to keep the relevant agencies updated. Intentionally keeping them in the dark is fraud, which carries both civil and criminal penalties, punishable with jail time (up to 5 years for defrauding the Social Security Administration) and fines.
Second, crowdfunding sites are generally open to the public, and some campaigns are publicized by local news organizations. Just because the client does not report the account to Medicaid or Social Security does not mean these agencies will not find out.
- What if the money goes to another family member and they pay my bills?
While it may be more difficult for the government to catch on, this is not without risk, and may not achieve the intended effect anyway. First, this is a form of fraud if the money is intended to support someone with government benefits and not reported as such. Second, since Social Security counts the income when it is “set aside” for the individual, the fact that someone else is writing the check does not exempt it as income. Further, some crowdfunding campaigns focus less on paying the actual medical bills and more on general support to pay for things that are not covered by other benefits. If a family member was to use the money in the crowdfunding campaign on items considered “in-kind support and maintenance” (ISM) for the client’s benefit, which generally includes food and shelter (including rent and utilities), Social Security will reduce the SSI recipient’s check automatically. Third, depending on the relation, the funds may be deemed as income to the person with SSI or Medicaid, as discussed above. Finally, there is always a chance the person with the money will not actually use the money for its intended benefit. Further, if the money is in that person’s bank account when they die, it may subject to that person’s estate plan or intestate succession.
How Can My Client Keep their Benefits and the Money that was Donated?
There are a few options to consider:
- Do nothing – take receipt the funds, report it to Social Security and/or Medicaid, and risk losing benefits. If a very large amount of money was raised, then maybe this makes sense; however, the private cost of care will drain the fund much more quickly than if SSI and Medicaid were preserved. This is even more risky if the individual is relying on Medicaid for long-term care.
- “Spend down” the funds on exempt assets. In some cases, funds can be used to purchase goods and/or services and, if done properly, will cause only a short interruption in benefits. It is strongly advised to consult with a disability or elder law attorney before attempting spend-down as there are specific, time-sensitive procedures to be followed.
- Deposit the funds into an ABLE account. ABLE accounts are a type of tax-advantaged bank account available to people who were disabled prior to age 26. The funds in this account are not counted by Social Security, Medicaid, or HUD as income. Up to $15,000 can deposited into an ABLE account per calendar year, so if the amount raised was below this threshold and the person qualifies for the account, an ABLE account is a fast, easy, and inexpensive way to ensure the funds do not disqualify the person from his or her benefits.
- Direct the funds to a special needs trust (SNT). Funds deposited in a properly-drafted special needs trust, whether a standalone or pooled trust, first-party or third-party, will not be counted by Social Security or Medicaid. One critical distinction to make is between first-party and third-party funds because this will dictate what happens to any funds remaining when the person dies. In a first-party special needs trust, Medicaid generally must be paid back for care provided by that program before any funds can be distributed to remainder beneficiaries. There is no such provision in a third-party special needs trust because the funds never really belonged to the beneficiary of the trust.
However, the line is somewhat blurred when it comes to crowdfunding accounts. The money raised is, by definition, donated by others; but where it goes and who has control of it determines whether it becomes first-party or third-party money. If the individual created the campaign for themselves, had access to, or ever took actual possession of the funds, it is most likely first-party money. The individual could then create a first-party SNT, but it would be required to have a payback provision. If someone else created the campaign and controlled access to the account, the money may still be eligible for a third-party trust; however, recall the rule about funds being counted as income once they are “set aside” for the individual’s benefit. It is arguable that donating the funds to a crowdfunding campaign would trigger this rule even if the individual with SSI or Medicaid did not have access to or perhaps did not know about the campaign. The mere act of setting the funds aside in something other than an ABLE account or SNT could be enough to make the funds countable.
The best course of action would be to set-up a third-party trust in advance (or find out if the individual already has one) and provide that campaign funds flow directly to the trust. Some crowdfunding sites, such as Go Fund Me, can assist with this process, locking the campaign so funds cannot be withdrawn by the campaign organizer. Using this technique guarantees the money is never reachable or available to the individual. If the campaign is already in progress, the organizer can speak with the site about locking the account to give them time to explore setting up a trust.
If the client needs to create a new trust, they may consider a pooled trust due to the ease of joining and lower expenses. Standalone trusts must be drafted from scratch and a trustee will need to be selected. Private banks serving as trustee often charge much higher fees than pooled trusts and may require a starting balance of $500,000 or more.
Pooled Trust Services also offers a pooled special needs trust that can be used anywhere in the United States for clients who are disabled and are receiving SSI/Medicaid. The Settlement Solutions National Pooled Trust (SSNPT) is a low-cost pooled SNT solution. SSNPT’s fees are among the lowest in the country. Even though it is low cost, we have world-class customer service and unique features. For example, we partner with TEAM services for those family members who are being paid as caregivers. This allows them to work on behalf of their family member yet have workers’ compensation coverage in addition to having payroll automatically handled.
 SI POMS 01140.205.C.2 To be clear, this provision applies to checking and savings accounts, but it is not a stretch to imagine the same treatment could be applied to crowdfunding accounts intended for multiple recipients.
 42 U.S.C. § 1383a(a)(1)-(4)