How Lump Sum Settlements Affect Social Security Disability Benefits
If you're receiving government benefits and are 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.
In short, while a lump sum settlement won’t impact your Social Security Disability Insurance (SSDI) benefits, it may affect your Supplemental Security Income (SSI) benefits, potentially reducing or 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 is based on your work history rather than your financial resources, a lump sum settlement does not affect your benefits. Your eligibility remains unchanged because the settlement does not impact your work credits.
SSI: SSI is a needs-based program that considers your income and resources. A lump sum settlement can increase your assets, possibly causing you to exceed the program’s asset limits, which could result in a reduction or loss of benefits. SSI eligibility is determined by an income test, and lump sum settlements count as income.
How to Protect SSI Benefits After a Settlement
If you’re concerned about losing your SSI benefits after receiving a lump sum settlement, there are steps you can take to protect them:
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Spending Down: You can use the lump sum to purchase exempt resources, lowering your assets and keeping them under the program’s limits. This should be done within a month of receiving the settlement. Some allowable uses include:
- Paying off a mortgage
- Paying off existing debts, such as credit cards or student loans
- Setting aside funds for funeral expenses
- Making home modifications for your disability
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Special Needs Trust: Another option is transferring the lump sum into a special needs trust, which helps protect your SSI eligibility. The trust allows you to use the funds for certain expenses not covered by SSI, such as legal fees or medical care. Setting up this trust requires legal guidance to ensure it's done correctly.
How Workers' Compensation Settlements Affect SSDI
If you're receiving both SSDI and workers' compensation benefits for the same disability, the total amount of benefits you receive cannot exceed 80% of your pre-disability earnings. If the combined benefits surpass this amount, your SSDI payments will be reduced.
Social Security typically converts a workers' comp lump sum into monthly payments to calculate the offset.
How to Minimize the Offset
You can work with an attorney to minimize the offset. Some potential strategies include:
- Excluding specific expenses: Your attorney may help exclude certain costs, such as future medical expenses, from the lump sum calculation, reducing the offset.
- Amortization provision: Another option is spreading the lump sum over your lifetime, which can lower the offset. This provision must be included in the settlement agreement before it’s finalized.
Protecting Your Benefits
Don’t avoid pursuing a legitimate claim out of fear of losing your benefits. Understanding how lump sum settlements affect your Social Security Disability benefits can help you plan for the future. An attorney can guide you through the process and help you protect your benefits.
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