Many injured parties need to be more experienced with money management. A settlement protection trust can arrange for expert money management.
Personal injury settlements can involve substantial sums of money. These funds need to be carefully managed, so they last. They also need to be protected from creditors, lawsuits and divorce.
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Basics
A settlement protection trust (SPT) is one of the tools available to help injured parties with financial needs. This can include those who feel they need protection from overspending or from others taking advantage of them, those with no experience managing funds, needing assistance purchasing a home or vehicle, arranging for case management or need money to pay for expenses that aren’t covered by insurance such as caregivers or equipment.
The Personal Injury Settlement Trust can be revocable or irrevocable depending on the injured party’s needs, and they can also include provisions to protect against creditors, divorce and other events that might deplete the award money. The SPT can also arrange for expert money management, which is important given that most injury victims are unsophisticated regarding finances and are prone to squandering their awards. SNTs can also provide for Medicare set-asides intended to ring fence future Medicare benefits related to the injury.
Taxes
Whether or not your settlement is taxable can be a difficult question to answer. The general rule is that personal injury settlements are not taxable. However, this may be subject to exceptions. For example, some of your compensation may be tied to lost wages; this is directly related to income and will be taxable.
Punitive damages are other sorts of compensation intended to penalize the defendant and are taxed. Your attorney will advise you on whether portions of your settlement are taxable and can assist you in establishing a settlement protection trust to handle the revenues. This is the safest alternative but requires you to give up direct access to and control over your prize. The trustee can still give you a limited power of appointment to disperse your funds as you see fit. This is also known as a grantor trust. A pooled SNT is another option and typically manages funds from many beneficiaries in one account with the help of skilled trustees, social workers and money managers.
Special Needs Trusts
In some cases, disabled injury victims may need to use a special needs trust (SNT) with their settlement proceeds to avoid jeopardizing Medicaid and SSI benefits. Multiple types of special needs beliefs exist, including first-party and third-party SNTs. In a first-party SNT or a self-settled SNT, the beneficiary establishes the fund with assets from their lawsuit award or inheritance. These funds can only be used for the benefit of the disabled individual and cannot be given to family members.
A professional trustee manages these funds and makes qualified disbursements that maintain eligibility for means-tested public benefits. These can include life-enhancing items or services unavailable through other government programs, such as leisure activities, counseling, camp and recreation. A professional special needs attorney will advise personal injury attorneys on the correct structure of these trusts and how to integrate them with structured settlement annuity payments. They will also know county and state regulations concerning SNTs and Medicare set-aside accounts.
Wills
The legal system in the United States permits those who have been wounded due to the carelessness or misconduct of others to seek compensation. This might imply a big monetary influx to cover lost income, medical expenditures, and other losses. It may also need a considerable lifestyle shift, including purchasing a new house or automobile.
Many injury victims need help managing their funds and preventing those who may take advantage of them from taking any money left over. They can benefit from a settlement protection trust.
A settlement protection trust or SNT is a special type of trust set up to protect settlement awards from being used to impair an injury victim’s eligibility for means-tested government benefits such as Medicaid and Supplemental Security Income (SSI). It’s a revocable trust that can be structured as either a grantor or a non-grantor trust. In the latter case, the trust assets are not considered resources for SSI and Medicaid eligibility, but those amounts can be used to fund third-party services and items.
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