The answer to your question depends on whether the benefit is SSD(SSDI) or SSI. In most cases you get either SSDI or SSI but not usually both. This is important since SSDI is based upon your past work and the benefit is not based upon your current financial situation. On the other hand, SSI is a needs based program and any change in your income or resources affects your eligibility and the amount of the benefit. Therefore a $40,000 settlement would disqualify you from continuing to received SSI but not SSDI.
Actual legal advice can only be provided by an attorney licensed in your jurisdiction, with experience in the area of law regarding your question. The information provided is for informational purposes only and is not legal advice.
If you receive SSI, you do need to report this change in resources: SSA says:
"Tell us if there is any change in what you own." (see: http://ssa.gov/pubs/11011.html)
Your settlement will likely impact any SSI benefit. SSA says:
"Money, whether in cash or an account, is considered a resource in the month after it is received in most cases. Sometimes money does not count as a resource for a limited period of time but then becomes a countable resource if it is not spent within the given time limit."
Can you structure the settlement and retain entitlement? You should seek legal advice for a specific answer to that question. See the link below about Trusts and the other link for general information about SSI.
This does not apply to DIB benefits.
DISCLAIMER: This response is for informational purposes only and does not form an attorney-client relationship. It represents only the educated opinion of the author. It should not be relied upon as legal advice. The response is based on the limited facts provided, and might change given additional or different facts.
With SSDI you do not have to report unless it is a workers' comp settlement.
With SSI you do have report. While SSDI is like getting an early retirement based on your work credits, SSI is technically a welfare program that depends on household income and assets. That money may be protected however by setting up a Special Needs Trust. You should try to find a local lawyer who can prepare one. This is a very special trust and is not something one should try to write on their own.
If you are in my practice area, call me for a free phone consultation. 407-894-1002. Answering a question on this website does not create an attorney-client relationship. I'm not officially your lawyer until we have had a one on one conversation and you have signed a retainer agreement. I practice bankruptcy in Orlando only. I practice Social Security Disability law throughout the State of Florida. Offices 2110 E. Robinson St. Orlando, FL 32803.