A personal injury settlement is meant to provide financial security after a life-changing injury. But for individuals with disabilities and their families, accepting a settlement without proper planning can have unintended consequences.
If you or your child currently receives, or may someday need, Supplemental Security Income (SSI) or Medicaid, the way a settlement is structured can significantly impact eligibility for these essential benefits.
As Elder Law and Special Needs attorneys, we often work with families after a settlement has been negotiated but before the paperwork is signed. That timing is critical. With proactive planning, it is often possible to preserve valuable public benefits while maximizing the long-term value of the settlement.
Why Timing Matters
Many people assume that once a settlement is reached, the hard part is over. In reality, one of the most important decisions still remains: how the settlement will be paid.
SSI and many Medicaid programs are “means-tested,” meaning eligibility depends on strict limits for income and assets.
If settlement proceeds are paid directly to the injured individual, the funds may immediately become countable resources that exceed those limits. In some cases, benefits can be suspended or terminated until the funds are properly spent down.
Once the money is received directly, options for protecting eligibility become more limited—and often more expensive.
That’s why planning should begin before signing a settlement agreement.
How a Settlement Can Affect Medicaid and SSI
Several common settlement arrangements can unintentionally jeopardize public benefits.
For example:
- A lump sum payment deposited into the beneficiary’s bank account may exceed SSI and Medicaid resource limits. For example, an individual who receives a retroactive lump sum payment from Social Security may be at risk of losing Medicaid benefits if the lump sum payment results in their resources exceeding their program-specific resource cap.
- Structured settlement payments made directly to the beneficiary may be treated as ongoing income.
- Investments or annuities purchased without considering benefit rules can create additional countable assets or income.
These issues do not mean someone should decline a settlement. Rather, they underscore the importance of coordinating the settlement with a comprehensive special needs plan.
A First-Party Special Needs Trust Can Preserve Important Benefits
One of the most valuable planning tools available is a First-Party Special Needs Trust (SNT).
A first-party SNT is funded with assets that belong to the individual with the disability, such as a personal injury settlement, inheritance received outright, or retroactive benefits.
When properly established and administered, the trust allows settlement proceeds to be used for the beneficiary’s supplemental needs while helping preserve eligibility for means-tested programs such as Medicaid and SSI.
Funds held in the trust can often be used for expenses that improve quality of life, including:
- Education and vocational training
- Therapies not covered by insurance
- Accessible transportation
- Technology and communication devices
- Recreation and travel
- Personal care items
- Home modifications
- Other supplemental goods and services
Unlike a third-party special needs trust, a first-party SNT generally includes a Medicaid reimbursement (“payback”) provision upon the beneficiary’s death. Understanding how these rules apply is an important part of the planning process.
Structured Settlements Require Careful Planning
Structured settlements are often an excellent option because they provide predictable payments over time rather than a single lump sum.
However, structured settlements are not automatically benefit-friendly.
If periodic payments are made directly to the injured individual, they may be treated as countable income for SSI and Medicaid purposes.
In many cases, families should discuss whether structured settlement payments can instead be directed into a properly established special needs trust.
Making this decision before settlement documents are finalized can avoid significant problems later.
Don’t Overlook ABLE Accounts
For many beneficiaries, an ABLE account can also play an important role in preserving benefits.
Depending on when the individual’s disability began, an ABLE account may allow funds to be used for qualified disability expenses, including housing, education, transportation, healthcare, employment support, and assistive technology, while maintaining eligibility for SSI and Medicaid.
ABLE accounts provide flexibility and greater financial independence, but they also have annual contribution limits and account balance rules. For larger settlements, an ABLE account is often most effective when used alongside, rather than instead of, a special needs trust.
Questions Every Family Should Ask Before Signing
Before accepting any settlement, families should discuss several important questions with both their personal injury attorney and a Special Needs Planning attorney.
Consider asking:
- Does the injured individual currently receive SSI or Medicaid?
- Will they likely need these benefits in the future?
- Will the settlement be paid as a lump sum, structured payments, or both?
- If structured payments are involved, who will receive them?
- Should a First-Party Special Needs Trust be established before funds are distributed?
- Are there Medicare, Medicaid, or other reimbursement claims that must be addressed?
- Who will serve as trustee, and how will trust funds be managed over time?
Answering these questions early can help avoid costly mistakes and preserve access to critical government programs.
Coordinating the Right Professionals
Personal injury attorneys, financial professionals, and Elder Law and Special Needs attorneys each play an important role in protecting the injured individual’s future.
By working together before settlement documents are finalized, families can often avoid unintended consequences and create a plan that supports long-term care, financial security, and independence.
The Bottom Line
A personal injury settlement should improve someone’s future; not unintentionally jeopardize the healthcare and financial benefits they depend on.
With thoughtful planning before the settlement is finalized, families can often preserve eligibility for Medicaid and SSI while ensuring settlement proceeds are used to enhance the beneficiary’s quality of life for years to come.
If you or a loved one is negotiating a personal injury settlement and currently receives. or may someday need, public benefits, consulting with the Elder Law and Special Needs attorneys at Mandelbaum Barrett PC before signing the settlement agreement can make all the difference.