What to Ask Before Settling a Personal Injury Lawsuit

A personal injury lawsuit involves seeking compensation for physical or emotional harm caused by someone else's negligence. This can include medical expenses, lost wages, pain and suffering, and other damages. To pursue a lawsuit, you must prove that the other party was at fault and that their actions directly caused your injuries. Consulting with a personal injury attorney to understand your rights and options is essential.

However, when personal injury lawsuits are settled, the underlying settlement figure may be less than you may have initially expected. This could be a result of attorneys’ fees and other costs. To ensure the resulting settlement best protects your long-term financial interests, as well as your health and quality of life, numerous factors must be taken into account.

Although this list is not complete, here are five important questions to answer before settling a personal injury claim:

1. Has your personal injury attorney consulted a special needs planner?

While your personal injury lawyer may be in the best position to ensure their personal injury victims receive maximum funds, they may not have expertise in the ins and outs of settlement planning for a person with a disability. For example, an individual who has incurred a disability may benefit from one or more of the following:

• a special needs trust (SNT)
• support through government assistance programs, such as
  • Supplemental Security Income (SSI)
  • Social Security Disability Insurance (SSDI)
  • Medicaid

A personal injury settlement could jeopardize an injured person's eligibility for public benefits. This is because some of these programs require the recipient to maintain a limited amount of income and resources. (Read more in another article about how a settlement could lead to the loss of SSI benefits, for instance.)

Consultation with a local special needs planner prior to settling a personal injury case is highly recommended. A special needs planning attorney with knowledge of personal injury law will understand the various legal solutions available to you. In addition, they'll have expertise in the rules and regulations for different public assistance programs, which can vary widely by state.

2. Should you use a structured settlement?

Many personal injury settlements take the form of a structured settlement, which essentially provides for a continuous series of payments over time, to ensure a steady stream of cash.

In some cases, however, the personal injury victim may have an immediate need for large amounts of money upfront. For example, the funds may be necessary to buy a home or pay for a medical device. Or the victim’s family may need to retrofit a home to accommodate the person’s disabilities. In such cases, it may make sense to not structure any of the settlement funds or to provide a lump sum to pay for the upfront needs alongside a structured settlement.

Read further about the pros and cons of structured settlements in a separate article.

3. Should settlement funds be placed in a special need trust?

As mentioned above, it may be in the victim’s best financial interest to obtain means-tested government benefits, such as SSI or Medicaid. To remain eligible for such these needs-based benefits, one option is to place the settlement funds in a special needs trust.

Funds in a special needs trust can go toward covering the costs of the disabled person's education, transportation needs, hobbies, and more. Because the funds in this type of trust do not technically belong to the beneficiary, they do not put their needs-based benefits at risk.

For more on special needs trusts and personal injury settlements, check out this article.

4. Should the funds be placed in an ABLE account?

If the victim requires government benefits and the settlement is modest, another option is to place the funds in an ABLE account. These tax-free savings accounts tend to be much easier to set up than special needs trusts. Plus, the individual can save up to $100,000 in an ABLE account without losing needs-based public benefits. However, keep in mind that ABLE accounts are less flexible and have stricter eligibility requirements than SNTs.

5. Will Medicare seek reimbursement for medical expenses?

Generally, Medicare enforces its right to obtain reimbursement from a beneficiary for any Medicare payments made to the beneficiary that should have been paid by a third party, such as an insurance company. Because of this, pending personal injury settlements must be reported to the Centers for Medicare and Medicaid Services so that it can enforce liens on the settlements and eventually obtain reimbursement. An exception applies, however, where the settlement is for less than $1,000.

To learn more about how to handle a personal injury settlement in the best possible way, be sure to consult your special needs planner.

Additional Reading

• What Is an ABLE Account for People With Disabilities?
• Funding a Special Needs Trust With a Structured Settlement
• How Third-Party Special Needs Trusts Differ From Other SNTs
• Supplemental Security Income: An Introduction
• Funding a Special Needs Trust With a Survivor Benefit Plan