When negotiating a settlement of a workers’ compensation claim, maximizing the lump sum payment is obviously one of the main considerations. However, a threshold issue that is often overlooked is whether the case should be settled in the first place. Whether the settlement is for $250,000 or $50,000, it will generally not be enough to sustain the individual’s cost of living for the remainder of his or her life.

Back when cases were settled via commutation of benefits, the parties would stipulate to a fictitious earning capacity for the injured worker from which a weekly partial disability rate could be derived. A supplemental agreement would then be executed in conjunction with a stipulation that would be approved by a workers’ compensation judge (WCJ). Pursuant to the stipulation, the injured worker would receive a lump sum payment equivalent to 500 weeks of the contrived partial disability rate as provided by the act. However, the whole process assumed that the claimant had a residual earning capacity. Since, under Section 316 of the Workers’ Compensation Act, the WCJ had to make a finding that the settlement was in the claimant’s best interest, unlike the modern compromise and release settlement, testimony by the claimant as to how he or she planned to achieve the fictitious earning capacity was significant.

While not required by the act anymore, a determination that a compromise and release settlement is in the claimants’ best interest remains paramount. Early on, the attorney should begin to identify with the claimant what the individual’s next income stream might look like. Perhaps a light-duty job or a spouse’s income can supplement the settlement. All too often, the answer to the question involves a future reliance on Supplemental Security Income (SSI) from the Social Security Administration.

Unlike Social Security disability, SSI is a needs-based system that offers monthly payments to individuals who have low income and few resources and are disabled, age 65 or older or blind. Whether you can get SSI depends on your income, as well as existing resources. Following a workers’ compensation settlement, an individual’s income is generally nothing, so that does not often present an impediment to eligibility for SSI. Unfortunately, however, the main existing resource an injured worker has following a settlement is the lump sum payment itself. Therefore, steps must be taken to ensure that Social Security does not count the settlement proceeds as a resource, or the claimant would flatly be ineligible for SSI. In Pennsylvania, the resource limit is $2,000. Even nuisance-value settlements are almost always greater than that limit.

If it is determined that SSI is the most likely income stream for a client, then a special needs trust is the most effective way to "shield" the money from Social Security’s assessment of existing resources. While money placed in a trust would generally be considered part of an individual’s resources for SSI purposes, this is not the case for special needs trusts set up under Section 1917(d)(4)(A) of the Social Security Act.

The timing of the SSI application is also important. If an individual applies for SSI prior to a settlement, then the weekly workers’ compensation indemnity benefits will render the claimant ineligible for SSI. Should the injured worker wait until after the settlement, there is often no money to live on until SSI is approved, which in the best-case scenario is in excess of three months. Moreover, an application cannot even be made until the special meeds trust is set up and funded, which is often a very involved and time-consuming process.

As a general rule, care should be taken to ensure the settlement proceeds are placed in escrow and the trust is set up immediately. If absolutely necessary, an initial distribution of $2,000 can be made to the claimant, assuming there are no additional resources, which will hopefully sustain the individual until the trust can be funded. The funding itself cannot happen until the state Department of Public Welfare has no objection to the proposed trust, which will only be the case if any liens relating to public or medical assistance are first satisfied. The process to ensure any liens are satisfied, in turn, must run through the department’s Division of Third Party Liability, Special Needs Trust Depository.

While the proper preparation and application of a special needs trust is not the subject of this article, suffice it to say it is time-consuming and labor-intensive. This is true even when the preparation of the trust if referred to an attorney who is particularly skilled at drafting such trusts. Nonetheless, the implementation of a special needs trust in the appropriate situations is vital to the success of the corresponding workers’ compensation settlement.

Settlements are only as good as their benefit to the client. For some claimants with no other access to resources and no prospect for future employment, SSI and a corresponding special needs trust is the only answer. The claimant’s practitioner should identify those clients now and begin that conversation.

Christian Petrucci is a solo practitioner and past co-chairman of the Philadelphia Bar Association’s workers’ compensation section. He concentrates his practice in workers’ compensation litigation and Social Security disability.