A personal injury lawsuit can result in an influx of money that can be difficult to manage. This is particularly true for people who rely on government assistance programs like Medicaid and Supplemental Security Income.
A settlement protection trust can prevent these monies from being squandered or coveted by significant others, family members, and friends. It also protects the funds from creditors and divorce claims.
Trustee Management
In many cases, dealing with a sudden infusion of cash can be difficult for someone awarded large sums of money. A settlement trust allows several trustees to manage the funds and prevent any embezzlement or misuse of the assets by a single person.
The most common type of personal injury settlement trust is a bare trust, which means that the property in the trust becomes part of your estate at death. However, some people prefer a discretionary trust that continues even after their death and can be managed by the chosen beneficiaries.
In most cases, trustees of personal injury settlement trusts must be people that the grantor (the person who awards the compensation) and the beneficiary agree would be suitable to manage the funds. Family members can fill this role, but employing professional trustees for peace of mind is often advisable.
Asset Protection
A settlement-protection trust can shield your personal and financial assets from claims by creditors. Some states offer protections for personal injury settlement funds when placed in a specific account or investment delineated from your other assets. Additionally, your settlement-protection trust can arrange for expert money management, which is important for injured parties unaccustomed to managing substantial sums of money.
Many different strategies exist for protecting your assets from predatory creditors. These include creating separate legal structures or arrangements such as corporations and trusts. The best one for you depends on the kinds of assets that you own and the types of creditors that are most likely to pursue claims against you. For example, an attorney can help you structure your settlement to receive periodic payments rather than a lump sum. This may be beneficial for those who need to manage a large amount of money over time or who are concerned that a lump sum could interfere with eligibility for income-based government benefits like SSI and Medicaid.
Tax Savings
A personal injury lawsuit can bring financial compensation, but this money is often insufficient to last an injured person’s lifetime. A settlement protection trust can arrange for expert money management that prevents the monies from being squandered.
In addition, there are ways to structure a settlement so that it does not increase income taxes for the plaintiff. One option is a structured settlement annuity, which allows an injured party to defer part of their award. The structured settlement planning experts will review the plaintiff’s short and long-term needs to devise a payment schedule that works for them. A structured settlement can also help the plaintiff keep eligibility for income-based government benefits.
Eligibility for Government Benefits
A substantial personal injury settlement can significantly impact a claimant’s eligibility for means-tested government benefits. Most of these programs have maximum income and asset limits. A large windfall can cause a plaintiff to be disqualified from these programs, especially if received as a lump sum.
A settlement planner can help protect these funds from impacting eligibility for government benefits by establishing a trust or other methods to structure the settlement. A settlement planner can also ensure that a plaintiff can comply with the income thresholds of the programs they are enrolled in.