Founded approximately eight years ago, GoFundMe is among the leading crowdfunding options for individuals looking to raise money for themselves or others for everything from life events to challenging circumstances. Other websites, such as Kickstarter, are more popular among those looking to raise funds for a business. GoFundMe is available to individuals and smaller entities who do not necessarily have access to large donors. A fundraiser might be for someone who is undergoing a medical procedure or treatment and cannot afford the cost, to help cover the cost of a birthday party for an underprivileged child, or to contribute to the funeral costs for a sudden and unexpected death. People can turn to family and friends, and even strangers, to raise much-needed funds. This is quite a valiant effort, one often met with tremendous success given the social media platforms available today, including FaceBook, Instagram, YouTube and others.

This article focuses on the effects of crowdfunding on Medicaid and Supplemental Security Income (SSI), though the same principles might apply to other means-tested benefits.

Means-Tested Government Benefits: A Brief Summary

Medicaid and SSI are two programs upon which elderly, disabled and impoverished individuals may rely to meet their daily needs for services and supports.

Medicaid provides insurance to the impoverished, elderly and disabled. It is a jointly funded federal (42 USC 1396, et seq.) and state program and, as such, the applicable rules and regulations vary from state to state. For example, in New Jersey, an individual is entitled Medicaid if his or her resources are below $2,000, while in New York, the resource allowance is $15,450 (in 2019). In addition to the resource allowance imposed by Medicaid, individuals receiving Medicaid are required to maintain a certain income. As with the resource allowance, the income standards vary from state to state and, depending upon the Medicaid program to which the individual is applying, the income allowance may differ.

Eligibility for SSI is based on disability, and the program is structured to provide a monthly stipend to cover food and shelter (42 USC 1381, 1381(a)). The current resource allowance is $2,000. The current stipend amount is $771. Certain states offer a supplement as well. SSI is a program regulated by the Social Security Administration, and the monthly benefit amount is set by the federal government. There are also other rules and thresholds that impact eligibility for this program.

Someone who is eligible for SSI is categorically eligible for (or categorically linked to) Medicaid in most states. Other states employ Medicaid income or asset limits that are more restrictive than those for SSI, which means that not all recipients of SSI are eligible for Medicaid.

How Does Crowdfunding with GoFundMe Work?

Fundraisers are not required to be in the name of the beneficiary, but the funds raised are only able to be withdrawn by the person raising the funds and/or the beneficiary. Funds withdrawn are transferred to WePay, and the funds are then sent to the beneficiary's account.

It is the author's experience that upon receipt of a new application, Medicaid caseworkers are checking these sites to determine whether a fundraiser has been initiated. Further complicating the issue is when the beneficiary is unaware that a friend or family member has started the fundraiser. Even though the beneficiary does not have direct access to the funds when it is initiated by a third party, the lack of oversight and lack of regulations surrounding this area make it difficult to predict how a Medicaid case worker or Social Security representative may treat the funds. There is no mechanism in place to monitor how the funds from the fundraiser are used once transferred to the beneficiary. If the beneficiary established the fundraiser on his or her own, then he or she has immediate access to any funds raised and can use these funds for any purpose. Thus, there is no reason why these funds should be considered exempt or in any way unavailable to the beneficiary for purposes of eligibility for means-tested government benefits.

While these crowdfunding tools have become widely popular, it seems as if practitioners are failing to discuss them with their clients, which means that applicants or recipients of means-tested government benefits are unaware of the implications on benefits.

First-Party Fundraising

A disabled individual can use a self-settled first-party special needs trust (SNT) in order to establish or preserve his eligibility for Medicaid in the event he is launching his own campaign or in the event he is the beneficiary of a fundraiser set up by a third party.

Minimally, in order to qualify as a SNT (42 U.S.C. 1396p(d)(4)(A)), the trust must be established for the benefit of an individual who is disabled and under 65 years of age; it must be established by a competent individual with disabilities, a parent, grandparent, legal guardian or the court; the trust must be funded with assets of the disabled individual; and the trust must be irrevocable. This type of trust is funded with the beneficiary's own money, otherwise referred to as "first-party money."

A pooled trust or community trust may also be utilized for the disabled individual; however, if he or she is over the age of 65, there may be transfer penalties associated with the funding of the pooled trust within five years of the transfer (42 U.S.C. 1396p(d)(4(C)).

Self-settled first-party SNTs include a payback provision which provides that upon the beneficiary's death, any funds remaining will be paid back to Medicaid to the extent medical assistance was provided to the beneficiary during his or her lifetime. Any funds remaining are paid to the estate of the beneficiary and distributed pursuant to the terms of his or her will. Similarly, if the beneficiary establishes a pooled trust or community trust, upon his or her death the funds remaining in the sub-trust account will be pooled for the benefit of other disabled individuals. For these reasons, a third-party supplemental benefits trust (SBT) (also referred to as a supplemental needs trust in other states) may be a more appealing option to the beneficiary or their family.

The beneficiary must monitor the fundraiser so that any funds raised are deposited into the beneficiary's account and then spent in the month of receipt. Otherwise, what would be considered income is treated as a resource and will potentially impact the beneficiary's eligibility for government benefits. The fundraiser should ultimately be treated as an available resource, same as any other account to which the beneficiary has complete access. It is important to keep in mind that once the money raised is collected by the beneficiary and deposited into the trust, the fundraiser must be ended. If not, any money raised after the date of the initial withdrawal will be considered available in establishing his or her eligibility for means-tested government benefits.

The author had two cases in the past year in New Jersey regarding crowdfunding, which were resolved prior to application or while the application was pending.

In the first case, a disabled individual was turning 65 when she was awarded a settlement in a personal injury action against a prior nursing home. A self-settled SNT was established and funded with the net settlement, but later it was discovered that a GoFundMe account had been set up for her in an effort to assist in the purchase of a motorized wheelchair that was not covered by Medicaid. Because the individual had already turned 65, the funds could not be released to the her and deposited into the SNT.  As such, the funds were released and paid to Medicaid as a partial payment on the lien.

In the second case. a disabled individual was preparing to file a Medicaid application. As part of the spend down, funds were being liquidated and moved into a SNT. Fortunately, the client knew about the fundraiser and had been withdrawing money through his WePay account. Thus, he was able to easily draw down on the account until the balance was zero and the fundraiser could be shut down.

Third-Party Fundraising

For those fortunate enough to have a family member or friend hoping to help pay for costs such as medical care, durable medical equipment, or even a vacation with appropriate staff or support, it is recommended to have the fundraiser set up in the name of a third-party SBT. While an SBT is managed and administered in the same manner as a SNT, it is funded with money from a third party that does not belong to the disabled beneficiary. The disabled beneficiary's eligibility for means-tested government benefits is not jeopardized, and since a third party is funding the trust, a pay-back provision is avoided, and the grantor of the trust can dictate how the funds will be distributed upon the disabled beneficiary's death.

ABLE Account

The Achieving a Better Life Experience Act (ABLE Act) was signed into law on Dec. 14, 2015, as part of the Tax Increase Prevention Act of 2014 (IRC §529A ). The intent of the legislation was to provide a vehicle for disabled individuals to fund savings accounts that would not jeopardize their means-tested government benefits. ABLE accounts are not counted when determining the beneficiary's eligibility for means-tested benefits. In order to establish an ABLE account, the beneficiary must have been disabled prior to the age of 26. The annual account contribution is limited to $15,000, which is linked to the annual gift tax exclusion. There is a $100,000 limit on the amount disregarded for SSI benefit eligibility (SSA POMS SI 01130.430). The ABLE account includes a pay-back provision.

Not every state has adopted the ABLE Act, and so it is important to research the various plans available if this is the route the family is looking to go. Every state that has adopted the ABLE Act has its own criteria, including the maximum contribution over the lifetime of the beneficiary.

Depending on the circumstances of the beneficiary and the amount of funds to be raised, an alternative option to a SNT or SBT is to establish an ABLE account for the beneficiary. This is only appropriate with certain facts, such as a small amount of money or lack of a trustee to serve.

Other Fundraising

 HelpHopeLive (helphopelive.org) is a fundraising site that provides a platform for raising money for medical expenses not covered by health insurance. According to its website, the organization maintains discretion over the funds raised, and so, in theory, means-tested benefits may be preserved.  The practitioner should confirm this with the Social Security Administration and local Medicaid agency directly.

As a special needs planner, it is important to determine whether one of these options might be appropriate and to discuss the benefits and risks regarding crowdfunding.

Lauren I. Mechaly is counsel at Schenck Price Smith & King in Paramus. She focuses her practice on elder law, special needs planning, estate planning, and estate administration.