What is a Settlement Protection Trust, and How Can it Benefit You?

A settlement preservation trust can protect structured settlement payment rights from factoring and exploitation by family members, friends and bad acquaintances. This strategy is often more appropriate than depositing funds with the court.

An irrevocable settlement protection trust may also shield assets from lawsuits filed by creditors. The trustee is legally required to keep detailed records of all disbursements.

What Is a Settlement Protection Trust?

When clients receive a large settlement, a Settlement Protection Trust can help them safeguard the funds from being expended too quickly. The trustee and the injured party can create a budget that will last the client’s lifetime, with adequate reserves to pay for unexpected expenses.

In cases where a Structured Settlement is being used, the trustee can set up direct deposits of payments into a settlement protection trust. This trust can be flexible, depending on the injured person’s needs. They can choose whether the trust is revocable or irrevocable. Additionally, the trust can be designed to comply with legal requirements for a Medicare Set Aside subtraction.

For clients relying on Medicaid or SSI, a Settlement Protection Trust is recommended to avoid loss of benefits. This trust also benefits minors and incapacitated plaintiffs who do not receive means-tested public benefits, such as SSI, SNAP (food stamps), LIHEAP (energy assistance) or many Medicaid waiver programs.

What Are the Benefits of a Settlement Protection Trust?

Settlement planning is an area of law that helps clients secure and preserve the benefits they rightfully received from a personal injury settlement, inheritance or judgment. This type of law covers everything from money management enhancements to protection from foolish spending and many other concerns that may arise for individuals who receive settlement funds.

Unlike Special Needs Trusts (SNT) and pooled trusts, settlement preservation trusts are irrevocable grantor trusts that provide additional financial protection from creditors. They are also designed to provide flexibility to accommodate future changes, such as fluctuations in income or employment.

The average large personal injury settlement is paid in a lump sum and lasts less than five years, so it’s important to have a system that keeps the funds available for as long as possible—even a lifetime. A settlement protection trust is ideal for this purpose. It can even be designed to deposit payments from structured settlements directly into the trust.

How Can a Settlement Protection Trust Benefit You?

Settlement Protection Trusts provide financial flexibility for clients who need help ensuring their recovery funds last and do not run out. They also protect those seeking access to their monies, including creditors or acquaintances who may have acquired information on their recovery funds.

An SPT can be used with structured settlement annuities and accommodate many other assets. It is especially useful for assisting injured clients who have difficulty managing their own money or are at risk of friends, significant others or family members taking advantage of them.

At the time of settlement, a client may be ineligible for means-tested public assistance such as SSI or Medicaid. In such circumstances, an approach incorporating an SPT and a Special Needs Subtrust in the same document should be considered. The trustee would be authorized to transfer funds from the SPT to the special needs sub-trust if the individual becomes disabled and requires public benefits.

How Can a Settlement Protection Trust Benefit Your Client?

Whether a client has long-term care needs or wants to ensure their settlement funds last for some time, a preservation trust is an ideal solution. The client can benefit from expert money management and structured settlement payments deposited directly into the trust, protecting wasteful disposition.

The trustees of a preservation trust are held to the highest standards of fiduciary duty and are not permitted to benefit from the trust’s assets. This shields the client from the bad behaviors of friends, relatives, and acquaintances who may try to exploit them.

A preservation trust is ideally suited for individuals who do not receive means-tested public assistance like SSI or Medicaid but can also be utilized for children. It can be combined with a Special Needs Trust to provide additional funding for the Medicare Set Aside Arrangement (MSA). It should also include a limited power of appointment so that a client can exercise it at any point and change the beneficiary or beneficiaries of the trust.