People who recover large sums of money from personal injury settlements often have concerns about managing this new influx of wealth. They might worry about squandering the funds or being taken advantage of by friends and family.
Prevents Creditors from Taking Advantage of You
Many injured people rely on need-based government assistance programs like Medicaid and Supplemental Security Income (SSI). Receiving a large monetary payment could negatively impact eligibility for these benefit programs. This is because the government counts the money received as “income.”
We recommend placing any settlement funds you receive in a Special Needs Trust to avoid this issue. This is especially true if you are a minor or mentally incapable person. In cases involving minors and mentally incapable persons, the High Court must agree to the foundation of a Personal Injury Settlement Trust before the compensated individual can access their award.
The trustees of the Special Needs Trust will invest the money and file taxes on any interest accrued. Since the compensated person does not own the Trust funds, they are protected from creditors. The trustees can also limit access to the funds so that they do not end up being squandered or coveted by family members or friends.
Protects Your Assets
If you or a loved one is receiving interim or final compensation due to a personal injury, a Settlement Protection Trust should be established. This trust can protect your assets from being squandered or coveted by friends and family members. A settlement protection trust can be revocable or irrevocable. If it is revocable, you can change it anytime if you are still legally competent.
In cases involving a minor or an incapacitated person, a Settlement Protection Trust should be irrevocable. This type of trust will allow for a greater degree of financial flexibility. The trustee can invest the funds, file taxes, and manage expenses without being subject to creditors or lawsuits. The trustee can also make distributions to third-party providers.
Protects Your Beneficiary’s Interests
Often, the money awarded in personal injury cases comes with strings attached. The injured party must be careful not to spend the money too quickly or risk losing eligibility for government support programs such as Medicaid and SSI.
A trust can help to ensure that this is not the case by ensuring that the awarded money is placed into an account managed by a trustee, usually a professional. The trustee will manage the funds on the injured parties’ behalf, considering that they may need to apply for government assistance to meet their basic needs.
The trustee should also be given limited power of appointment so the injured party can remove and replace them if they are not happy with their performance. A trustee will generally charge a fee for this service, which is normally on a declining sliding scale based on the value of the assets under management.
Creates a Plan for Your Estate at Death
A personal injury settlement trust is a legal entity that holds your award and is owned by trustees who you appoint.This is a safe and secure way to protect your award.But it also means you give up direct access and control over the funds.You can also set up a life or discretionary trust for your award.
But if you use the funds to pay for your care there may be income limitations and restrictions.This can be especially true for incapacitated adults who receive government assistance such as SSI and Medicaid (including many Medicaid waiver programs) and SNAP (Food Stamps).
In these situations you need to set up a special needs trust or pooled special needs trust. These are a subset of personal injury settlement trusts and allow individuals to deposit funds into the trust without impacting their ability to qualify for public benefits.A professional manages and invests funds in these types of trusts.
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