Settlement protection is a critical component of a structured settlement annuity sales strategy. These trusts are often used to protect assets against future claims from creditors. A SPT is ideal for a minor or incapacitated plaintiff who does not receive means-tested public benefits. However, a SPT cannot shelter money from existing government liens.
Preserves Assets for Future Needs
A settlement protection trust can help insulate your client’s settlement funds from long-term care costs, lawsuits, and creditors. It can also allow beneficiaries to avoid the lengthy probate process should they pass away, protect loved ones with addictions or spendthrift tendencies from rapidly depleting inheritances, and ensure that minor children only inherit once they can legally do so.
With a domestic asset protection trust (DAPT), your client can agree on a budget with the trustee that will last their lifetime. They can then receive distributions from the trust according to this budget, ensuring reserves are maintained for emergencies.
For those expected to need income-based government benefits, a special needs trust may be necessary to preserve eligibility for SSI and Medicaid. This type of settlement protection trust can combine a DAPT with a structured settlement annuity to offer the same investment efficiencies and creditor protections that a DAPT provides without jeopardizing eligibility for means-tested government benefits.
Ensures a Smooth Settlement Process
Settlement planning is a process of legally preparing individuals who have received settlements for the management and preservation of their assets. The purpose is to maximize the benefits of a settlement and provide for future needs, such as medical care, ongoing maintenance, or education.
A domestic asset protection trust shields the assets from creditors who might try to seize them after a lawsuit. It also can help protect against unexpected financial issues that could happen in the future, such as a divorce or bankruptcy.
A settlement preservation trust can be set up to protect a plaintiff from wasteful dissipation by restricting trust funds’ distribution. Additionally, suppose the trust is funded for life with a structured settlement annuity. In that case, it helps ensure that funds remain available over time and prevents the beneficiary from depleting their assets too quickly. In addition, a settlement preservation trust can be used to hold acquired assigned structured settlement payment rights or secondary market income streams for clients with the appropriate risk tolerance.
Preserves SSI and Medicaid Benefits
As mentioned above, a personal injury settlement can significantly impact someone’s eligibility for means-tested government benefits. Unless appropriately structured, the proceeds from a settlement can count as income or assets and cause your client to lose vital public benefits assistance such as SSI and Medicaid. A settlement protection trust, or SPT, can prevent your client from losing these important services by separating the funds from their other assets. SPTs can be funded with lump sum payments, structured settlement annuities, or income-generating investments such as stocks and bonds. In addition, an SPT can include “springing powers” to convert to a Special Needs Trust with the addition of a Medicare Set-Aside sub-trust if there is a need to preserve SSI and Medicaid eligibility. This provides the flexibility to address your client’s current needs and adapt to what may come in the future. This is a critical element of settlement planning.
A structured settlement, commonly used as a form of payment in tort cases, can provide the injured party with steady tax-free cash flow (in a physical injury case) to help more efficiently meet ongoing needs and achieve speculative future goals. An SPT can be designed to allow the payments from a structured settlement to be deposited directly into the trust.
These trusts offer the ability to have a professional trustee manage the assets. This trustee can be removed and replaced at the beneficiary’s request, a great feature for those who worry about spending too much of their sudden funds or being taken advantage of by predatory friends and family members. Because these trusts are not specifically described in Federal law, they are not considered “special needs” trusts but may provide similar protections. For this reason, they can often be established without jeopardizing SSI and Medicaid benefits.