How to Protect Public Benefits After Receiving a Personal Injury Settlement

When someone who relies on public benefits like Supplemental Security Income (SSI) or Medicaid is injured in an accident and receives a personal injury settlement, it can be a bittersweet moment. While the settlement provides financial relief, it may jeopardize eligibility for these crucial benefits. Fortunately, with proper planning, recipients can safeguard their benefits while making the most of their settlement.

Understanding the Impact of Settlements on Public Benefits

Public benefits like SSI and Medicaid are "means-tested," meaning eligibility is determined by income and asset limits. A personal injury settlement, if not handled correctly, can push a recipient's assets above these limits, potentially disqualifying them from receiving benefits. However, benefits like Social Security Disability Insurance (SSDI) and Medicare are not means-tested and are generally unaffected by settlements.

Strategies to Protect Public Benefits

Here are some effective strategies to ensure that a settlement does not disrupt access to vital benefits:

1. Special Needs Trust (SNT)

A Special Needs Trust is a powerful tool for individuals with disabilities. By placing the settlement funds into an SNT, the money is no longer counted as a personal asset. The trust can then be used to pay for expenses that enhance the recipient's quality of life, such as medical care, education, or recreational activities, without affecting eligibility for SSI or Medicaid.

• First-Party SNT: Funded with the recipient's own money (e.g., the settlement). It must comply with strict rules and include a Medicaid payback provision upon the recipient's death.

• Third-Party SNT: Funded by someone else, such as a family member, and does not require Medicaid payback.

2. ABLE Accounts

Achieving a Better Life Experience (ABLE) accounts are tax-advantaged savings accounts for individuals with disabilities. Recipients can deposit up to a certain annual limit without affecting their SSI or Medicaid eligibility. ABLE accounts are ideal for smaller settlements or as a complement to an SNT.

3. Structured Settlements

Instead of receiving a lump sum, a structured settlement spreads payments over time. This approach can help keep the recipient's income and assets below the eligibility thresholds for public benefits. However, careful planning is still required to ensure compliance with benefit rules.

4. Spend-Down Strategy

In some cases, recipients may choose to "spend down" their settlement funds on exempt assets, such as a primary residence, vehicle, or medical equipment. This reduces their countable assets while improving their quality of life. However, this strategy requires meticulous documentation and planning.

The Role of Professional Guidance

Navigating the intersection of personal injury settlements and public benefits is complex. Consulting with an experienced attorney or financial planner who specializes in this area is essential. A licensed settlement planner at CSS can help structure the settlement in a way that preserves benefits while maximizing the recipient's financial security.

Key Takeaways

• Personal injury settlements can jeopardize means-tested benefits like SSI and Medicaid if not handled properly.

• Tools like Special Needs Trusts, ABLE accounts, structured settlements, and spend-down strategies can protect eligibility.

• Professional guidance is crucial to ensure compliance with benefit rules and to make the most of the settlement. Contact us to assist (Marci@settlewithcss.com).