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How can a personal injury lawsuit or other settlement affect my government benefits?

Ali Katz


Q: How can a personal injury lawsuit or other settlement affect my government benefits?

--Concerned Plaintiff

A: Dear Concerned:

Receiving a personal injury settlement as compensation for your losses can bring significant financial relief if you are injured or disabled. But personal injury settlements can sometimes be considered income, and though most compensatory settlement funds are not taxable, they still have the potential to affect the government benefits you receive, such as Medicaid and SSI.

Not all settlement funds will affect your benefits, and there are ways you can avoid this from becoming an issue. The key to assuring your settlement won’t affect your benefits is to take action before you receive the funds. An attorney can help you plan for the management of your settlement in a way that allows you to keep your benefits. If you don’t take these precautions, you risk losing your benefits, and you may even have to reimburse Medicaid for certain expenses covered.

Typically, your benefits eligibility can be affected once you have at least $2,000 in resources. If a personal injury settlement will put you over this limit, you can convert it to another kind of fund. To protect your government benefits, consider placing your settlement funds in a special needs trust account. This type of account is used to hold funds for people with special needs, such as medical conditions or disabilities. You can assign a trustee who can manage the funds while you are living or after your death. The trustee can disburse funds for approved expenses as needed in a way that won’t work against your benefits eligibility.

You can also use a portion of your settlement funds for exempt purchases to reduce your resources below the maximum resource threshold. This may not be a good option for those who don’t have many exempt expenses or who receive a relatively large settlement.

Speak with a Personal Family Lawyer® if you stand to receive a personal injury settlement. How you receive the funds can affect your eligibility for government benefits. Careful planning and early action, however, can ensure your settlement does not affect your eligibility. A Personal Family Lawyer® can advise you on what you can do to receive your funds while still protecting your valuable benefits.