Is Your Client’s Settlement Opening You Up to Liability?

Plaintiffs who receive a personal injury settlement face a number of important considerations, not the least of which is whether or not they’ll risk losing government benefits if they elect to receive a lump sum. For the attorney, an uneducated client can be a potential red flag for a future malpractice case.

ENTITLEMENT BENEFITS VS. GOVERNMENT BENEFITS: WHAT IS THE DIFFERENCE?

Entitlement benefits (sometimes referred to as “non-means tested” or “non-needs tested”) are those for which American taxpayers pay into their paycheck. These types of benefits include Social Security Disability Income (SSDI), Social Security, and Medicare. On the other hand, government benefits (also referred to as “public,” “means-tested,” or “needs-tested”) have income and/or asset tests. These types of benefits include Supplemental Security Income (SSI), Medicaid (Medi-Cal), Medicaid Waiver programs, Children’s Health Insurance Program (CHIP), Section 8 Housing, and Food Stamps (SNAP).

The key to that information is the income and asset tests. Typically, if an individual has assets totaling more than $2,000 ($3,000 for a married couple), they become ineligible for means-tested benefits. While some might believe that the settlement proceeds will make up for the loss in benefits eligibility, the hard truth is that many injured victims find that they still need those benefits in addition to the settlement just to maintain a decent standard of living.

For a client who is currently receiving government benefits, the loss of those benefits could not only be shocking-it could be catastrophic in terms of their ability to care for themselves medically and financially. By not walking the client through all of the options for settlement, the attorney leaves themselves vulnerable to future litigation (see Grillo v. Pettiete, et al., 96-45090-92, 96th District Court, Tarrant County, Texas).

STRATEGIES FOR PROTECTING GOVERNMENT BENEFITS

There are a number of strategies and tools that can be employed to protect government benefits eligibility. A Special Needs Trust with a Structured Settlement Annuity and/or a Spend Down are two of the most highly recommended tools in settlement.

• Structured Settlement Annuities are an excellent tool for preserving the settlement. They are among the most flexible plans in terms of design, offering the annuitant the ability to customize a plan that best fits their individual needs. The annuity (or annuities) can be purchased using all or a part of the settlement recovery. Payments can be received monthly, annually, or as a series of lump sums at designated times for large life expenses, such as college and retirement.
• Special Needs Trusts are a great option for those with serious medical needs who will require long-term care. The payments from a Special Needs Trust can be used to pay for expenses related to the ongoing care of the claimant, such as therapy, medication, and medical equipment. The Special Needs Trust allows the beneficiary to maintain a certain standard of living while enjoying the proceeds of the settlement. As a caveat, though, trust planning often includes certain fees and overhead costs that aren’t associated with structured annuities.
• Spend Downs can be a little tricky as they have very strict rules on the timing and what the funds are spent on. It’s important for the attorney to know that you MUST give the funds to the client at the beginning of a month so they have the rest of the month to “spend down” the funds on approved items.If you are considering taking on a case with a claimant who has government benefits, bring a settlement consultant into the process as early as possible. They will walk your client through the steps of protecting government benefits and will develop a plan for long-term financial security. In the long run, this careful, comprehensive process will protect not only your client-it will protect you.