When you are injured because of the negligence of an individual or company, you may be entitled to compensation for the injuries. Are you receiving Social Security Disability, Supplemental Security Income, Medicare or Medicaid, or food stamps? These benefits can be affected by an award that you receive as a result of your personal injury.
Disability and Supplemental Security Income
Many government benefits such as Supplemental Security Income use certain requirements to determine eligibility. In order to be eligible you must be disabled, blind, or age 65 or older. In addition, you must also have limited resources or income. Social Security Disability uses similar eligibility requirements except for the limited resources or income. This is because Social Security Disability is not based on financial need, but on the inability to work. Any amount received for a personal injury case will not affect disability income, but it can affect Supplemental Security Income.
Protecting Your Supplemental Security Income
If you are under the age of 65 and on Supplemental Security Income, there are a few ways you can protect this income if you receive a personal injury settlement or award. One way is a Special Needs Trust. The trusts are also called settlement preservation trusts or medical needs trusts. Setting up a trust with a structured settlement of the funds received from a personal injury case can allow you to keep your Supplemental Security Income. The trust is created to pay for things that are needed that the government benefits do not cover. They are called supplemental needs.
What are supplemental needs? They can include the following, but do not cover shelter or food.
- Medical Services not Covered by Medicaid or Medicare
- Cable Television
- Computers and Services
- Personal Care Items
These are just a few of the things that can be purchased with money that is placed into a Special Needs Trust. However, the money for these purchases must be spent by a trustee, who is appointed to oversee the funds. A trustee is typically a relative such as a parent or another person.
Setting Up a Trust
When setting up a trust received from a personal injury settlement or award, it must be court approved. A trustee is necessary because the beneficiary of the money could use money from the trust to pay for items that are not allowed. The trustee must also save the receipts for any items purchased and provide them to the Supplemental Security Income agency to prove the money was only spent on allowed items.
Your personal injury attorney can draft a settlement plan to help protect any benefits you receive. Because the rules are very strict about the amount of income or assets you can have and still be eligible for government benefits, it is important that you receive legal advice to protect your income. This is true of Supplemental Security Income as well as Medicaid, Social Security, food stamps, AFDC (Aid to Families with Dependent Children), Section 8, and some veterans benefits.
One thing that you should know about a Special Needs Trust is that it is irreversible. The trustee is the only one who can use the funds to pay for approved items for the injured party. Medicaid places a lien on the money in the trust if the injured party dies. The money remaining is used to reimburse Medicaid for medical payments made on behalf of the beneficiary. If any money is left, it will be distributed to heirs of the deceased.
Is it Better to Take a Structured Settlement or a Lump Sum?
Your attorney can advise you on the benefits of both. A structured settlement is typically paid over several years or it could be paid for the life of the injured party. This will depend on the extent of the injuries. A structured settlement could offer tax benefits because personal injury settlements are not taxed. Some parts of the settlement or award such as punitive damages or interest on the settlement can be taxable. Punitive damages are damages awarded to stop the guilty party from engaging in the same behavior that resulted in the personal injury.
A lump sum may sound enticing but for some, the comfort of knowing they will be receiving money on a regular basis is more desirable. When you take a lump sum, there are certain fees that will be deducted such as attorney’s fees. When receiving a structured settlement these costs are generally paid upfront by the insurance company of the person responsible for your accident.
Although the lump sum is not taxable, any money made from investments such as interest or dividends are taxable on the federal and state level. You will actually have more money by taking a structured settlement than a lump sum. Whatever option you choose, it is also important to know that it cannot be changed.
If you decide on a structured settlement you cannot change your mind later and decide you want a lump sum. You also cannot decide to change any of the terms of the settlement such as the frequency or the amount of the payments. Consult with your attorney about adding a cost of living clause or this will not be considered either.
It is extremely important to talk to a personal injury lawyer when you have been injured because of negligence. Not only can they help you to get the compensation you deserve, they can help protect your settlement or award if you are receiving government assistance.