What happens if I'm on SSI and win the lottery?

Winning the lottery can be an incredibly exciting event, providing financial security for life. However, for those relying on Supplemental Security Income (SSI) benefits, a lottery windfall can quickly become complicated. SSI has strict eligibility rules regarding income and assets, so a lottery prize could jeopardize someone’s benefits if not handled carefully.

How does winning the lottery affect SSI eligibility?

SSI is a needs-based program intended to help those with disabilities or seniors (65+) who have little income and assets. There are set limits on how much income and assets one can have while remaining eligible for SSI:

Income limit: Federal benefit rate (FBR) plus state supplement, if applicable. In 2023, the FBR is $914/month for an individual or $1,371/month for a couple.
Asset limit: $2,000 for an individual, $3,000 for a couple. Certain assets are exempt from this limit, like a primary home.

Lottery winnings are considered both income and assets. If the prize puts someone over these limits, they can lose eligibility for SSI. Even smaller prizes added to other income sources could potentially impact benefits.

What should I do if I win the lottery while on SSI?

If someone on SSI wins a sizable lottery prize, they should take these steps:

Claim winnings anonymously if possible. This avoids alerting the Social Security Administration (SSA) right away.
Consult a lawyer who specializes in SSI and disability benefits. They can advise the best steps to preserve eligibility.
Create a Special Needs Trust (SNT). More on this later.
Notify the SSA and coordinate next steps. A lawyer can help strategize how to communicate the lottery win.

The key is acting quickly but cautiously to protect SSI eligibility with proper planning.

What is a Special Needs Trust?

A Special Needs Trust (SNT) is an important tool to protect assets for someone on SSI. With an SNT, a person can deposit assets like an inheritance, lawsuit settlement, or lottery winnings into an account where:

The trust beneficiary (person on SSI) does not own the assets.
Assets are used for beneficiary’s benefit but aren’t counted for SSI eligibility.
Trustee controls and distributes funds for approved expenses.

This keeps assets below the $2,000 individual / $3,000 couple limits for SSI. Types of SNTs include:

First-party SNT

Funded with beneficiary’s own assets.
Must be created by parent/grandparent/guardian or court if beneficiary is a minor.
Pays back state Medicaid costs from remaining funds upon beneficiary’s death.

Third-party SNT

Funded by assets from someone other than the beneficiary.
Can be set up by beneficiary or third party (no limits).
Remaining funds can go to other beneficiaries upon main beneficiary’s death.

A skilled SSI lawyer can set up the optimal SNT to maintain eligibility and properly manage lottery winnings.

What expenses can the trust pay for?

A properly structured SNT can pay for a wide range of expenses to enhance the beneficiary’s quality of life, including:

Housing costs like rent, property taxes, utilities.
Transportation like accessible vehicles, rideshares, transit.
Home/vehicle modifications for accessibility.
Medical care like specialists, therapies, medications.
Assistive technology and devices.
Caregiver services.
Travel, entertainment, hobbies.
Personal care items, clothing, subscriptions.

Purchases must be for the sole benefit of the SNT beneficiary. Expenses that could jeopardize SSI should be avoided, like paying food and shelter costs of someone else in the household.

What about Medicaid benefits?

Along with SSI cash assistance, many beneficiaries also rely on Medicaid for health coverage. Medicaid eligibility may also be impacted by substantial new income or assets. Options to maintain Medicaid may include:

Medicaid trust: Assets put into a Medicaid trust aren’t counted for eligibility. Upon death, state is reimbursed up to Medicaid benefits received.
Medicaid waiver program: Some states have waiver programs that allow higher income and assets while receiving Medicaid.
Medicaid buy-in program: Beneficiaries can “buy into” Medicaid by paying a monthly premium based on income from assets.

An elder law or disability attorney can advise the best approach to preserve both SSI and Medicaid as needed.

Are lottery winnings taxable for someone on SSI?

Yes, lottery winnings are considered taxable income by the IRS. Some key points on taxes:

Federal taxes: Prizes over $5,000 are taxed up to 37%.
State taxes: Varies by state, up to 8%.
Withholdings: 25% federal and varying state taxes withheld upfront upon winning.
Filing requirement: Must claim winnings on tax return even if under filing threshold.

Taxes can significantly reduce the actual jackpot amount. It’s important to consult a tax professional to minimize tax liability and ensure all IRS rules are followed.

Can I receive a reduced SSI benefit?

If income or assets exceed the SSI limits, it is possible in some cases to receive a reduced SSI benefit instead of losing eligibility entirely. This may occur if:

Countable income reduces SSI payment dollar for dollar after the $20 general exclusion.
Countable assets reduce benefit by $1 for every $2 over the $2,000 limit.

This is complex and depends on the lottery amount, other household income sources, living arrangements and other factors. The SSA will conduct an eligibility review and determination.

When should I notify Social Security about winning?

Legally, SSI recipients must report any change in income or assets within 10 days. However, consulting a lawyer first is highly recommended to put protections in place. The lawyer can strategize the best approach and timing to notify SSA while trying to preserve eligibility.

Ideally, the beneficiary should set up an SNT, transfer lottery winnings into it, pay any applicable taxes, and take other steps before the SSA is ever notified.

Could I lose my Medicaid while pursuing a lottery prize?

Possibly. Medicaid eligibility could be jeopardized during the time between winning a lottery prize and successfully transferring it into a protected SNT. Ways to reduce risk:

Set up SNT framework ahead of time, amend later as needed.
Work with lottery officials to transfer directly into SNT account.
See if personal story of adverse impact sways Medicaid official to retain benefits.

Communication is key throughout the process to retain Medicaid coverage.

Are disability-based benefits also impacted?

Yes, certain other government benefits may also be affected by a lottery prize or other windfall, including:

Social Security Disability Income (SSDI) – No asset limits, but income over Substantial Gainful Activity level of $1,470/month could impact eligibility.
Veterans benefits – VA pension income and asset limits could lead to discontinuation.
Workers’ compensation – Lump sum awards can suspend benefits; weekly benefits may be offset.

These programs require separate strategizing and coordination by an experienced attorney to attempt to retain eligibility.

Can I gift or transfer assets to protect SSI?

No. The SSA imposes a 36-month “lookback period” if assets are transferred for less than fair market value. Gifted assets still count toward eligibility during this timeframe. This includes transferring funds to family or friends.

Plus, improperly gifting assets can result in substantial fines or even criminal charges if done to conceal resources and maintain eligibility fraudulently.

Are there exceptions for home purchases?

Yes, some exceptions allow protecting SSI eligibility when assets are used to purchase, repair, or modify a primary home, such as:

Exempt home: Primary residence does not count toward $2,000 asset limit.
Home repair/modification: Assets used to adapt home for disability needs,add accessibility features don’t impact eligibility.
Property essential to self-support: Property used to produce income may be excluded as an asset depending on circumstances.

Proper planning with an SSI lawyer can leverage these home exceptions.

Can I protect other assets like cars?

Yes, other assets like vehicles may also be shielded with the right planning:

Exempt vehicle: One car used for regular transportation does not count toward asset limit.
Retirement accounts: Assets in IRAs, 401(k)s, etc. are not counted while receiving regular distributions.
Life insurance: Policies with face values under $1,500 cash value aren’t counted.

These exemptions must be understood and applied correctly based on SSI rules to avoid losing eligibility.

Are spouses and children also impacted?

With SSI, only the assets and income belonging to the beneficiary are counted for eligibility. However, there are some exceptions:

Married couple – household assets and income are combined.
Child beneficiary – portion of parental income/assets may count.
Household member helps pay expenses – pro-rated share of income counts.

An SSI lawyer can provide guidance on how family members may be impacted in specific cases.

Can I set up a business with lottery winnings?

Possibly, but this must be approached cautiously. Placing assets into a business could remove them from SSI eligibility calculations. However, it also introduces risk if not structured properly, such as:

Business profits may count toward income limits.
Business failures or lawsuits could wipe out assets.
Fraud charges if viewed as concealment scheme.

Those wanting to pursue business opportunities should work closely with legal counsel to do so safely within SSI rules.

Do I need to hire a lawyer?

It is strongly advised to work with an attorney experienced in SSI law. The rules are incredibly complex, and the wrong approach could have devastating financial consequences. An attorney can help navigate this process to:

Set up Special Needs Trust properly.
Strategize communications with SSA.
Preserve eligibility for SSI, Medicaid, and other benefits.
Appeal any adverse eligibility determinations.
Avoid penalties for fraud or abuse.

While lawyers do cost money, their expertise preserves far greater value in benefits over the long-term in these situations.

What factors determine impact on SSI eligibility?

Some key factors the SSA considers when evaluating assets and income from lottery winnings:

Amount won – Larger prizes more likely to disrupt eligibility.
Frequency of payout – One-time lump sum vs. annuity payments over time.
Deductible expenses – Taxes, fees reducing actual income counted.
Asset transfers – At what point assets moved into protected accounts.
Other household income – Combined impact with spousal income, etc.

An attorney can assess these details and craft an appropriate strategy.

When does Medicaid eligibility get redetermined?

After reporting a lottery winning, Medicaid eligibility will get reassessed during the next scheduled renewal period, or earlier if requested. Things that could prompt an earlier redetermination:

Request for exemption like transferring to SNT.
Losing SSI cash assistance.
Earning other income like wages, alimony.
Gaining other health insurance coverage.

Maintaining Medicaid often hinges on the timing of these reports and reviews.

Can I request an appeal if benefits are denied?

Yes. If SSI, Medicaid, or other benefits are discontinued or reduced after a lottery winning, an appeal can be requested. The standard process is:

Reconsideration – Initial appeal to same SSA office that made determination.
Administrative hearing – Hearing with administrative law judge.
Appeals council review – Review by Social Security’s appeals council.
Federal court – Final appeal option is federal district court.

At appeal hearings, beneficiaries can present evidence, bring witnesses, and be represented by counsel. An SSI lawyer can greatly increase odds of a successful appeal.

Are there options besides an SNT to protect assets?

Alternatives that may protect assets and eligibility in certain cases include:

ABLE account – Tax-advantaged savings for disability expenses. Limit of $100,000 before SSI impacted.
Irrevocable funeral trust – Funds set aside for beneficiary’s funeral costs.
State annuity – Allows higher asset limit if state-issued annuity purchased.
Pass-through account – Direct deposit of SSI funds provides sheltered personal account.

These options have restrictions and limitations compared to an SNT, but can provide other tools as needed.

Should I contact a consumer protection lawyer?

If handling a major lottery prize, it may also be advisable to consult a consumer protection attorney regarding claiming and publicizing the prize. Issues potentially relevant include:

Scams and fraudulent claims.
Predatory lending against future annuity payments.
Tax implications and strategies.
Privacy rights and winner publicity laws.
Security and safety concerns as public winner.

Consumer protection lawyers can provide guidance to help major lottery winners avoid pitfalls.

Conclusion

Winning a lottery prize can certainly be life-changing, but requires caution and planning for those relying on needs-based benefits. With sound legal advice and strategic use of tools like Special Needs Trusts, it is possible to retain eligibility for SSI, Medicaid, and other support programs. While complex, proper management of a lottery windfall can provide financial security without sacrificing these crucial safety nets.