How to Protect Your Disability Benefits After an Insurance Settlement

Receiving an insurance settlement can be a significant financial windfall, but it may also be a cause for concern if you already receive or are expecting to receive disability benefits. This article will provide a comprehensive guide on how to protect your disability benefits from an insurance settlement. We will discuss legal options, the importance of consulting a lawyer, and strategies for managing the funds without jeopardizing your entitlements.

Understanding the Impact on Social Security Disability

If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), an insurance settlement can have different effects depending on the nature of your benefits and the settlement. Generally, SSDI benefits are not affected by an insurance settlement. However, SSI benefits may be impacted if the settlement amount exceeds the allowable resource limit.

Impact on SSI

For SSI recipients, any insurance settlement over $2000 will need to be reported. If the total resources exceed $2000, your SSI benefits may be suspended. However, the disability benefits will resume if the funds are spent down to under $2000 within a specified time frame.

One way to manage the funds is by depositing them into an Achieving a Better Life Experience (ABLE) account. ABLE accounts are tax-advantaged savings accounts designed for people with disabilities. The funds in these accounts can be used to pay for expenses related to disability without affecting your eligibility for SSI benefits.

Protecting Your Benefits Through Trust Arrangements

If you are concerned about the impact of an insurance settlement on your disability benefits, setting up a trust can be an effective solution. There are different types of trusts available, each with its own set of advantages and requirements.

Special Needs Trust

A Special Needs Trust (SNT) is a trust that is designed to protect assets for individuals with disabilities without impairing their eligibility for government benefits. Setting up an SNT can cost between $2500 and $4000, but it is often well worth the expense. The trust is managed by a trustee who ensures that the funds are used solely for the beneficiary's needs.

Pool Trust

A Pool Trust, also known as a Pooled Trust, is a more economical option where a professional trustee manages the trust on behalf of multiple individuals. This type of trust usually incurs no upfront setup costs but may have a small monthly fee. Pool Trusts are a good option for those who want to protect their benefits without the substantial initial cost.

Consulting a Lawyer

While setting up a trust can be a viable solution, it's crucial to consult with a lawyer who specializes in disability law. Each individual's situation is unique, and the lawyer can advise on the best course of action. They can also help draft the necessary legal documents and ensure that all aspects of the trust are in compliance with the relevant laws.

If you have already received an insurance settlement, it is imperative not to deposit the funds directly. Instead, you should contact your attorney immediately. They can help you draft a check to a trust, either a Special Needs Trust or a Pool Trust, to protect your disability benefits.

Structured Settlements

In some cases, your attorney may be able to arrange for a structured settlement. This is a payment plan that provides you with a series of payments over a set period, rather than a single lump sum. This option can be particularly beneficial for managing the funds over a longer period and maintaining your eligibility for disability benefits.

To determine if a structured settlement is right for you, you should discuss your goals with your attorney. They can help you understand the potential long-term impact of different settlement options on your disability benefits.

Conclusion

Protecting your disability benefits after an insurance settlement requires careful planning and professional advice. By setting up a trust, working with a knowledgeable attorney, and potentially arranging a structured settlement, you can ensure that your funds are used effectively and do not jeopardize your eligibility for crucial disability benefits.

Remember, the impact of an insurance settlement on your disability benefits can vary depending on the type of benefits you are receiving and the specifics of your individual case. Therefore, it is essential to seek personalized advice from a qualified professional to navigate this complex issue successfully.