If you’re receiving government benefits and about to receive a lump sum from a personal injury or workers’ comp settlement, you’re probably wondering how it impacts your Social Security Disability benefits.
Here’s the breakdown: A lump sum settlement won’t affect your Social Security Disability Insurance (SSDI) benefits, but if you’re receiving Supplemental Security Income (SSI), a settlement could reduce your benefits or even make you ineligible.
Impact of Settlements on Benefits
The effect of a settlement depends on which Social Security program you’re enrolled in.
SSDI: SSDI benefits are based on your work history and not your financial situation. So, receiving a lump sum settlement won’t impact your benefits because it doesn’t affect your work credits. As long as you meet the necessary work credit requirements, you’ll remain eligible for SSDI.
SSI: Unlike SSDI, SSI is a needs-based program. Eligibility depends on your income and assets. A large settlement can push your financial resources above the program’s limits, reducing your monthly benefits or even disqualifying you from the program entirely. SSI uses an income test, and lump sum settlements are included in this test.
Can You Protect Your SSI Benefits After Receiving a Settlement?
Yes, you can protect your SSI eligibility after receiving a settlement. Here are a couple of strategies:
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Spending Down: This involves using the settlement to purchase exempt resources, which can help you stay under the asset limit for SSI. You need to do this within a month of receiving the lump sum. Examples of allowed expenditures include:
- Paying off a mortgage
- Paying off debts like credit cards or student loans
- Setting aside funds for funeral expenses
- Making modifications to your home to accommodate your disability
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Creating a Special Needs Trust: You can transfer the lump sum to a special needs trust, which won’t count against your assets for SSI eligibility. This trust can be used for expenses that SSI doesn’t cover, like legal fees or nursing care. However, setting up such a trust is complicated, so it’s advisable to consult with an attorney to avoid mistakes that could jeopardize your benefits.
Impact of Workers’ Comp Settlements on SSDI
If you’re receiving SSDI and also receive workers’ comp due to a work-related injury, there are some important considerations. Although you can receive both SSDI and workers’ comp for the same injury, the total combined benefits can’t exceed 80% of your pre-disability earnings.
If your total benefits exceed this amount, Social Security will reduce your SSDI payments to keep the combined total at or below 80%. Typically, Social Security will convert your lump sum workers’ comp settlement into monthly payments to calculate the offset.
Can You Minimize the Offset Amount?
Yes, you can reduce the offset amount. An attorney can help you structure the workers’ comp settlement to minimize the impact on your SSDI. Some strategies include:
- Excluding specific expenses: Your attorney can ensure certain costs (like future medical expenses) are excluded from the lump sum calculation, which reduces the offset.
- Amortization provision: You can spread the lump sum settlement over your lifetime, which can lower the offset. However, this provision must be included in the settlement agreement before it’s finalized.
Protect Your Benefits
It’s important to pursue a legitimate claim, even if you’re concerned about losing benefits. By understanding how lump sum settlements affect Social Security Disability, you can take steps to preserve your benefits. Consulting with an attorney can help you navigate the complexities of these issues, ensuring you keep as much of your benefits as possible while minimizing the impact of settlements on your financial assistance.