If you are involved in a personal injury claim that is likely to result in a financial settlement or award, it may have an effect on existing benefits, like those involving Social Security. In making this determination as it specifically relates to Social Security benefits, the key is identifying the type of benefits that you are receiving or are planning to receive. The two common forms of such benefits include Social Security Disability (SSDI) and Supplemental Security Income (SSI). In most cases, SSDI would not be affected by a personal injury settlement; however, there may be significant adverse consequences for recipients of SSI benefits.
Social Security Disability (SSDI)
When earning income by working, you will pay taxes as well as contribute to what could be considered as a form of disability insurance managed by the U.S. Government. Funds for SSDI are sourced from Social Security trust funds and the program is not classified as one that is “need-based.” Eligibility for these funds is based on the amount and the length of time that a person has contributed to the program. If you were to become disabled, your eligibility for collecting this benefit is generally not affected by your assets or income. Exceptions do exist in situations including those receiving workers' compensation benefits and others.
Supplemental Security Income (SSI)
This program is “needs-based” and provides for individuals with low-income and other scenarios such as children with disabilities. Funds are sourced from the government's operating budget. Those under the age of 65 may qualify for SSI if they are determined to be disabled and have no more than $2,000 in qualified resources--or $3000 if married. Benefits are also available for those persons who are 65 years old or over and meet the financial requirements.
The government differentiates the types of resources considered when calculating eligibility. The types of resources that are typically not factored in when determining whether you qualify include your home, vehicles needed for transportation, personal and household items, some prepaid funeral expenses, and life insurance policies up to a monetary threshold.
Types of Income Considerations
Generally, a personal injury lawsuit settlement should not impact your status relating to SSDI and Medicare. What is factored in for these purposes is income that generally includes net earnings from self-employment, gross wages, and workers compensation. A settlement may result in tax consequences and in certain situations, an individual's Social Security benefits may be subject to taxes.
Losing SSI Benefits from a Settlement
Those currently or soon to be receiving SSI benefits must understand the potential ramifications of obtaining a monetary settlement. The termination of SSI income and Medicaid coverage could have a negative long-term effect, particularly if you are disabled. Despite being able to use settlement funds in lieu of Medicaid to cover medical expenses, unless the settlement is very substantial, this situation may not be sustainable. Ongoing prescription costs, a hospital stay, and costs of nursing care are likely to consume your funds over the years. There is also a possibility in some situations where you may be subject to a Medicaid lien for reimbursement of costs.
Special Needs Trusts
Establishing a “special needs trust,” often called a Medicaid trust, is an option for retaining an injury settlement without losing critical SSI and Medicaid benefits. Funds from the trust are able to be used to cover a variety of expenses including personal care, transportation, travel, legal expenses, education and others. The creation of this type of arrangement may be complex and you may want to ask your personal injury attorney for a potential referral to an attorney who practices within the realm of estate planning or tax law or perhaps a financial professional that is familiar with trusts.
When involved in a personal injury case with the potential for receiving a monetary award or settlement, it is important to consider any financial ramifications that may occur. Your personal injury attorney will have the ability to guide you on these issues based on your unique circumstances. This may include the potential impact that the award may have, involving Social Security, Medicare, Medicaid, retirement benefits and potential tax consequences.