Suffering a personal injury can be life-changing, and the situation becomes even more complex when you are disabled. Whether your disability was pre-existing or caused by the injury, handling a personal injury settlement requires careful planning to ensure that you receive the compensation you deserve while protecting your financial future and government benefits. In this guide, we will walk you through the essential steps to managing a personal injury settlement when you are disabled.
Assessing the Value of Your Settlement
Before accepting any settlement offer, it is crucial to determine the full value of your claim. This involves more than just covering immediate expenses, you need to account for long-term financial needs and the impact on your daily life.
Medical costs often make up a significant portion of a personal injury settlement. If you are disabled, your medical expenses could be higher due to specialized treatments, physical therapy, assistive devices, and ongoing care. Make sure your settlement includes:
- Current medical bills (hospital stays, surgeries, medication, etc.)
- Future medical expenses (rehabilitation, home modifications, in-home care)
- Assistive equipment costs (wheelchairs, prosthetics, mobility aids)
If your injury prevents you from working or reduces your ability to earn income, you may be entitled to compensation for lost wages. Additionally, if you were employed before your injury but can no longer work at the same capacity, your settlement should reflect the long-term impact on your earning potential. This includes:
- Past lost wages due to time off work
- Future lost income if you can no longer work or need reduced hours
- Loss of career opportunities and professional advancement
A settlement should also compensate you for non-economic damages, such as:
- Physical pain and suffering from the injury and ongoing disability-related challenges
- Emotional distress due to trauma, anxiety, depression, or reduced quality of life
- Loss of enjoyment of life if you are unable to participate in activities you once loved
Legal Considerations for Disabled Claimants
Navigating a personal injury settlement while disabled can be legally complex. It is essential to work with a legal professional who understands both personal injury law and disability-related legal issues. A personal injury attorney with experience handling cases for disabled individuals can:
- Ensure you receive a fair settlement that accounts for your unique needs
- Help you negotiate with insurance companies and opposing parties
- Guide you on how to structure your settlement to protect government benefits
Understanding liability and insurance policies is key to maximizing your settlement. Some important factors to consider include:
- Comparative negligence laws: If you were partially at fault for the accident, your settlement could be reduced.
- Insurance limits: The at-fault party’s insurance coverage may limit the amount you receive.
- Multiple liable parties: If more than one party was responsible for your injury, you may have multiple claims.
Protecting Your Government Benefits
One of the biggest concerns for disabled individuals receiving a personal injury settlement is how it affects Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), Medicare, and Medicaid.
- SSDI (Social Security Disability Insurance) is not income-based, so receiving a settlement does not impact eligibility. However, it could affect Medicare coverage if you require long-term medical care.
- SSI (Supplemental Security Income) and Medicaid are needs-based programs—a large lump-sum settlement could disqualify you.
To avoid losing SSI or Medicaid, consider placing your settlement funds in a Special Needs Trust (SNT). This type of trust allows you to:
- Keep your settlement money while remaining eligible for government assistance
- Use funds for approved expenses, such as medical care, housing modifications, and daily living needs
- Protect your financial future without jeopardizing disability benefit.
If you receive Medicare, you may need to establish a Medicare Set-Aside (MSA) account. This account ensures that a portion of your settlement is used for future medical costs related to your injury, preventing Medicare from denying coverage later.
Structured Settlements vs. Lump Sum Payments
One of the most important decisions you will face after receiving a personal injury settlement is whether to take a lump-sum payment or a structured settlement. A lump sum provides you with the full settlement amount at once, which can be beneficial if you have immediate financial needs, such as paying off medical bills, modifying your home for accessibility, or settling debts. However, a large sum of money can be difficult to manage, and if not handled properly, it may be quickly depleted.
Additionally, receiving a lump sum could impact your eligibility for need-based government benefits such as SSI or Medicaid. On the other hand, a structured settlement provides regular payments over a set period, which can help ensure financial stability and long-term security. These payments can be scheduled monthly, annually, or in larger increments at specific times to accommodate future expenses. Choosing between a lump sum and a structured settlement depends on your financial situation, medical needs, and future plans, so it is advisable to consult with a financial expert before making a decision.
Tax Implications of Your Settlement
Understanding the tax implications of your personal injury settlement is crucial to avoiding unexpected liabilities. In most cases, compensation received for physical injuries or illnesses is not taxable, meaning that money awarded for medical expenses, lost wages, and pain and suffering is not considered income by the IRS. However, there are exceptions. If your settlement includes punitive damages, these are taxable because they are intended to punish the defendant rather than compensate you for losses.
Additionally, any interest earned on your settlement funds is subject to taxation. Another key factor to consider is whether you previously deducted medical expenses related to your injury on your tax return. If you later receive a settlement covering those expenses, that portion of the settlement may be taxable. Given these complexities, working with a tax professional can help ensure that your settlement is properly structured to minimize tax burdens and protect your financial future.
Financial Planning After Receiving a Settlement
Once you receive a personal injury settlement, it is essential to create a financial plan to ensure that the funds last as long as needed. Many people underestimate how quickly a large sum of money can be spent, especially when facing ongoing medical expenses and daily living costs.
A financial planner with experience in disability-related cases can help you develop a budget, invest wisely, and set up a plan for long-term financial security. If you rely on government assistance programs such as Medicaid or SSI, financial planning becomes even more critical, as mismanaging the settlement could disqualify you from these essential benefits.
Setting up a trust account or opting for a structured settlement are some of the ways to protect your funds and maintain eligibility for assistance programs. A well-thought-out financial plan can provide peace of mind and ensure that your settlement serves its intended purpose, supporting your ongoing care and quality of life.
Common Mistakes to Avoid
Handling a personal injury settlement improperly can lead to financial difficulties, loss of benefits, or a lack of resources for future medical needs. One of the biggest mistakes disabled individuals make is spending the settlement too quickly, often on large, unnecessary purchases instead of prioritizing long-term care and stability.
Another common mistake is failing to protect eligibility for government benefits, which can happen when a lump-sum payment increases your assets beyond the allowable limit for programs like Medicaid or SSI. Not setting aside funds for future medical expenses is another major oversight, as disabilities often require ongoing treatment, therapy, and specialized care that can become costly over time.
Additionally, some individuals do not seek professional guidance, assuming they can manage the settlement on their own, which can lead to mismanagement and financial hardship. Avoiding these common pitfalls by working with legal, financial, and tax professionals can help you make informed decisions and secure your financial future.
Conclusion
Successfully handling a personal injury settlement when you are disabled requires careful planning and informed decision-making. From choosing the right payout structure to understanding tax implications and preserving government benefits, every step must be taken with long-term stability in mind.
Working with experienced professionals including personal injury attorneys, financial planners, and tax experts can help you navigate the complexities of settlement management while ensuring that your compensation provides lasting support. By making smart financial choices and avoiding common mistakes, you can maximize your settlement’s value and maintain the quality of life you deserve.
