There are many benefits of selling structured settlement payments but if you are also claiming one or more disability benefits, you should get advice about whether a lump sum will affect your entitlement to them.
The information below is intended to give you some guidance on the likely impact of a lump sum on various public disability benefits but the only way to find out for sure is to speak to your Social Security office or a trusted lawyer or credit counselor.
SSDI, SSI and Settlement Money
Many of our customers whose structured settlement was awarded in response to a successful workers’ comp, personal injury or medical negligence suit, are also in receipt of a public disability benefit like SSDI or SSI. Naturally, they wonder if selling their structured settlement and receiving a lump sum will affect their eligibility for these benefits.
The first place to start is by pointing out some important differences between these two types of support.
Public disability benefits are of two types: Social Security Disability Benefit (SSDI) – also known as Disability Insurance Benefits (DIB) – and Supplementary Security Income (SSI).
If you are already in receipt of SSDI, your benefits won’t be affected by receiving your lump sum. This is because SSDI is an entitlement benefit based on previous payments made under the Federal Insurance Contributions Act (FICA). Your employer will have withheld around 6% from your pay packet to fund SSDI. Or, if you were self-employed, you will have paid into the Social Security fund via your tax return. Either way, the fact that you are already receiving SSDI means that you have fulfilled the eligibility criteria. This situation will not change when you receive a lump sum from selling your structured settlement.
SSI on the other hand is a means-tested benefit for disabled, blind, aged or low-income people. This benefit is likely to be affected by any change in your financial situation. SSI pays out a maximum of $2,000 per month (or $3,000 if you’re married). Since one component of SSI calculations is an asset test, the increase in your assets from a lump sum payment will almost always reduce or end your entitlement to SSI for a while. You must report your change in circumstances to Social Security so they can make the necessary calculations.
It should be pointed out that even if you don’t sell your structured settlement, the periodic payments you receive will affect your SSI entitlement as it is counted as income.
How are Medicare and Medicaid Affected?
Disability often comes with considerable medical expenses such as doctor’s visits, prescriptions, surgeries, therapies and transport to and from appointments. Again, it’s no surprise that many of our customers wonder whether their entitlement to Medicare or Medicaid would be affected if they sold their structured settlement for a lump sum payment.
The situation is almost exactly the same as with SSDI and SSI. Medicare is a health insurance that is available for disabled people who are eligible for SSDI (and have been receiving benefits for 24 months). As such, eligibility is based purely on prior contributions made under FICA. Again, if you are receiving Medicare now, you must have already been deemed eligible and your lump sum will have no effect on Medicare entitlement. However, your income will be used to determine your Part B and D premiums for the tax year in question. If your lump sum raises your income above the current threshold, you will be required to pay the higher rate Part B and Part D premiums. This only affects the tax year in which you receive the funds so later years will revert back to normal.
Medicaid is also a health insurance available to disabled people (and also the blind, elderly, children and people on low income). Like SSI, Medicaid is a means-tested benefit and your eligibility might be affected by receiving a lump sum from a structured settlement sale. If you lose Medicaid, you could find yourself needing to pay a lot of money for medical care, including expensive prescription medications, so you need to speak to your Social Security office or an attorney for some specific advice.
SNAP, which provides food assistance, and HUD, which provides housing benefit, are also means-tested and will be affected by a lump sum payment.
It should be added that gifting your money to someone else or even donating it to a charity does not protect your entitlement to needs-based benefits. The money is still regarded as a resource belonging to you and could mean you are denied benefits for a time or asked to pay back benefits already received.
If you do decide to go ahead with selling your structured settlement, make sure you contact Social Security within 10 days to report your change of circumstances.
Protecting your SSI and Medicaid Entitlements
There are a number of ways to protect eligibility for SSI, Medicaid and other means-tested benefits.
One way is by spending the lump sum in one go (or enough of it to bring you down to your SSI resource limit). Your Social Security office will be able to tell you exactly what that dollar amount is. This strategy is known as SSI lump sum spend down. Before you jump at this option, you should be aware that, although you will remain eligible for SSI, you will likely still need to repay some or all of your SSI for the month you receive the lump sum on (and it will also be counted as an asset for the following month). In some states, the lump sum only counts as income the month after you receive it so if you spend it all in the first month, you may not lose any benefit.
When opting for a spend down, Social Security will suspend your benefit payments until you can provide proof that you have spent the money. Therefore, you should make sure you keep all of your receipts as evidence or at least ensure your spending is accurately reflected in your bank statement. You will need to provide the evidence to Social Security within 12 months. Providing they are satisifed you have spent the money, they will reinstate your SSI benefit. Otherwise you will have to reapply.
Placing your funds in a special needs trust (SNT) is another way of protecting your eligibility for public benefits as they will then not be counted as an asset. However, there are restrictions on what you can use SNT funds for. Common SNT-funded expenditures include transportation, travel, legal services, nursing care, therapies and educational opportunities. If you think an SNT might be the way forward in your cirumstances you should get appropriate advice. A probate or elder lawyer will be able to help you with that.
Sources of Further Support
For most issues regarding your eligibility for Social Security benefits, your first point of call should be your Social Security office.
For further legal advice, you can contact your local legal office or a volunteer attorney program. The attorney who represented you in your original case should also be able to provide you with information about your specific situation.
Other sources of support include non-profit credit counselors (try the Financial Consulting Association of America and the National Foundation for Credit Counseling).