How Lump Sum Settlements Impact Social Security Disability Benefits?

If you're receiving government benefits and about to receive a lump sum from a personal injury or workers' compensation case, you might wonder how it will affect your Social Security Disability (SSD) benefits.

To summarize, a lump sum settlement won’t impact your Social Security Disability Insurance (SSDI) benefits, but it could affect your Supplemental Security Income (SSI) benefits, potentially reducing or even eliminating them.

How Lump Sum Settlements Impact Benefits

The effect of a lump sum settlement depends on the type of Social Security benefits you're receiving.

SSDI: Since SSDI benefits are based on your work history rather than your financial situation, receiving a lump sum settlement won't affect your benefits. It doesn't change your eligibility based on work credits.

SSI: SSI is a needs-based program, and your eligibility depends on your income and assets. A lump sum settlement may increase your assets, potentially pushing you over the program’s asset limits, which could reduce or eliminate your benefits. Lump sum settlements are considered income in the SSI eligibility test.

How to Protect SSI Benefits After a Settlement

If you're concerned about losing your SSI benefits after receiving a lump sum, there are steps you can take to protect your eligibility:

1. Spending Down: You can use the lump sum to buy exempt resources, reducing your assets to stay within the program’s limits. This should be done within a month of receiving the settlement. Some examples of allowable expenses include:

   • Paying off a mortgage
   • Paying off debts (such as credit cards or student loans)
   • Setting aside funds for funeral expenses
   • Modifying your home to meet your disability needs

2. Special Needs Trust: Another option is to transfer the lump sum into a special needs trust, which allows you to preserve your SSI eligibility. The trust funds can be used for things that SSI doesn't cover, like medical care or legal fees. However, creating a special needs trust requires legal expertise to ensure it’s done correctly.

Impact of Workers' Compensation Settlements on SSDI

If you’re receiving both SSDI and workers' compensation for the same disability, the total amount of benefits you receive cannot exceed 80% of your pre-disability earnings. If the combined benefits exceed this limit, your SSDI benefits will be reduced.

Social Security usually converts a workers' comp lump sum into monthly payments to determine the benefit offset.

How to Reduce the Offset

You can work with an attorney to minimize the offset. Some strategies include:

• Excluding certain expenses: Your attorney can help ensure that specific costs, such as future medical expenses, are excluded from the lump sum calculation, reducing the offset.
• Amortization provision: Another option is spreading the lump sum over your lifetime, which can help minimize the offset. This provision must be included in the settlement agreement from the start.

Protecting Your Benefits

Don’t let the fear of losing benefits prevent you from pursuing a legitimate claim. By understanding how lump sum settlements affect your Social Security Disability benefits, you can plan ahead. An attorney can guide you through the process and help you protect your benefits.