Is VA Disability Considered a Structured Settlement?
A structured settlement is a type of compensation that provides a stream of tax-free payments tailored to meet future medical expenses and basic living needs. Structured settlements are an alternative to lump-sum awards and have been endorsed by plaintiff’s attorneys, state attorneys general, legislators, judges and consumer and disability advocates.
Benefits
There are many different benefits offered by the United States Department of Veterans Affairs (VA). These include health care, pension, vocational rehabilitation, disability compensation, education, home loan guaranty, death benefits, and more.
VA disability benefits are divided into two categories: Service-Connected Disabilities and Non-Service Connected Disabilities. Both categories have different criteria and benefit levels.
The primary VA benefit is a pension, which is a monthly payment for disabled veterans who meet certain qualifications. It is not subject to income tax and can be increased or decreased depending on the severity of a veteran’s disability.
A veteran who has a disability can also be eligible for aid and attendance or housebound benefits, which are added to the basic pension. These benefits are available to severely disabled veterans and their dependents.
This type of benefit is not subject to income tax and can be used to pay for the costs of living at home. The amount a veteran receives is based on the veteran’s VA disability rating and their income, net worth, and medical expenses.
Another benefit for severely disabled veterans is Special Monthly Compensation (SMC). This compensation can be higher than the basic pension rate and is available to more severely disabled veterans who have a combination of disabilities.
SMC is especially important for veterans who have a disability that affects their ability to work. This includes traumatic brain injury, severe deafness, and blindness.
If you have been awarded a structured settlement or are in the process of structuring a settlement, you should consult with an attorney who is experienced in structured settlements. An attorney can help you determine how much of your settlement should be paid in installments over time and what payment amounts are appropriate for the duration of your disability.
In addition, an attorney can assist you in establishing a Special Needs Trust or other legal documents that are designed to protect your government benefits. These legal documents can be very beneficial in ensuring that your government benefits remain intact after you receive your settlement.
If you are a VA-eligible veteran, you should contact an experienced VA-approved attorney to submit your claim. A VA-approved attorney will be able to file the claim for you and ensure that your case is processed in a timely manner.
Limits
A structured settlement is a form of financial planning that can be effective in providing periodic income payments to disabled clients, while preserving their eligibility for government benefits such as Social Security and Medicaid. The payments are tax free and can be managed by experienced attorneys and financial advisors to ensure the client’s ongoing needs are met.
The structured settlement is designed to provide a stable stream of income while the plaintiff is incapacitated, or until they reach the age of retirement. It may also provide a stream of tax-free payments for the plaintiff’s future medical expenses and basic living expenses.
Typically, structured settlements require a substantial amount of planning to be successful. The settlement agreement must be drafted by an experienced attorney to ensure the structure is properly structured to comply with complex federal and state laws.
There are several types of structured settlements available for injury victims. One of the most common is a spousal annuity that provides a fixed monthly income for a spouse and/or dependent children who have disabilities.
These types of annuities are often used in situations where the injury victim has substantial medical bills or other debts that cannot be financed by traditional means. The payments are designed to replace a lump sum of money, so they can pay off existing debts and avoid having to take public assistance or apply for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).
Another type of structured settlement is one that involves purchasing a portion of a person’s existing assets to generate an income stream. This is called a “factoring” transaction, and it requires approval from a judge.
The most important benefit of a structured settlement is that the proceeds from it are tax exempt. They can be used to fund the establishment of a special needs trust or to provide for a person’s long-term care.
A special needs trust can be used to help manage a person’s structured settlement, and it can protect the beneficiary from predators. A special needs trust can be established by a qualified attorney and funded with the proceeds of a structured settlement.
Taxes
If a veteran has a medical disability, the VA pays him or her a monthly benefit based on their disability. These benefits are non-taxable, meaning that a veteran does not have to report them as income on a federal tax return.
In some cases, the IRS will ask a disabled veteran to pay taxes on a portion of his or her disability benefits. If this happens, it is important to contact a CPA who can help you navigate the tax code.
Veterans are often eligible for a wide range of tax breaks. For example, many states offer property tax exemptions for honorably discharged veterans, or a veteran can qualify for a state-funded disability pension.
There are also various types of structured settlements that can be set up to provide stable income over time, without impacting eligibility for needs-based government benefits. These can include a substantial initial payment that can pay for bills or a mortgage, as well as lesser succeeding payments designed to provide an alternative source of income.
Another option is a structured settlement that can be designed to pay for exceptional costs, such as college tuition. These can be paid for with supplemental amounts added to your regular income.
A structured settlement can be a great way to increase your income if you have been unable to work due to an injury. A seasoned West Palm Beach special needs planning and elder law attorney can guide you through the process of setting up this type of structure.
One key factor that can determine whether a structured settlement is taxable is the money that was used to pay for the insurance premiums. This can affect the tax treatment of your future payments.
Other factors to consider are how much the settlement is worth and who is responsible for paying it. In general, a structured settlement is not taxable if the payments are made by an insurance company or employer that is subject to state regulations that are designed to protect consumers.
However, if the structured settlement is purchased by an individual, it can be subject to taxation as ordinary income. A seasoned West Palm Beach special needs planner can guide you through the process of creating an irrevocable, structured settlement that can be a valuable tool in your financial arsenal.
Requirements
VA disability benefits can be paid out in the form of a monthly cash benefit or a monthly Pension payment. Both of these are income tax free, however the VA will require that the claimant receives a service-connected disability and meet duty requirements for disability compensation before they can receive this type of benefit.
Jim, a 58-year-old veteran who served in Vietnam for two years but has since had a stroke, is receiving a monthly Pension benefit from the VA. He is concerned that the lump sum of $100,000 he is expected to receive from his auto accident settlement may reduce his pension benefits.
The VA has very few regulations on how it determines financial need to qualify for the Pension benefit and it is very difficult to show that you are in need if you have excessive assets.
This can include an individual’s home, personal effects and even a car. Buying these types of exempt assets can help to lower the asset limit and again establish the need for a Pension benefit.
Another way to protect the excess asset is to shelter a portion of the settlement in a special needs trust. This is an effective method to avoid disqualification under the means test of public programs like SSI and Medicaid that will deny a person benefits if they do not have enough assets.
It is also a good idea to have a qualified attorney work with your structured settlement broker on the special needs planning aspects of a settlement. This will allow you to structure your settlement so that it meets all of your needs now and into the future.
Many injured workers choose to receive a structured settlement as a result of the flexibility, security and tax benefits it offers. They can customize future payments to match their specific needs, such as replacing lost income or paying for life-long care costs, which are often a major source of expense.
While there are many benefits to a structured settlement, it is important to understand the unique challenges and drawbacks that can be associated with it. Understanding the limitations will ensure that you and your family make the best decision for your particular situation.
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