Settlement Preservation Trust

SETTLEMENT PRESERVATION TRUST

What is a Settlement Preservation Trust?

A/K/A SETTLEMENT MANAGEMENT TRUST, SETTLEMENT PROTECTION TRUST, SETTLEMENT PLANNING TRUST

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Settlement Preservation Trust

What is a Trust?


A trust is an instrument established so that property is held by one party for the benefit of another party.  The person who creates the trust, by transferring property or money is known as the grantor, settlor or trustor. A trust is governed by the terms under which the trust was established.  The terms of a trust are usually stated in a written trust document. 


What is a Trustee/Fiduciary?


A trustee is a fiduciary, bound by the trust document and is held to a standard of conduct and trust above that of a stranger or of a casual businessperson. He/she/it must avoid "self-dealing" or "conflicts of interests" in which the potential benefit to the fiduciary is in conflict with what is best for the person who trusts him/her/it. A trustee may be an individual, company or public entity.


What Is a Settlement Preservation Trust?


A Settlement Preservation Trust ("SPT") is a personal injury settlement management instrument with a financial institution, that has fiduciary responsibility to the trust beneficiary, which can be used alone or in combination with a structured settlement annuity.  A settlement preservation trust is irrevocable grantor trust. A Settlement Preservation Trust may also be referred to as a Personal Injury Settlement Management Trust, also known as a Settlement Planning Trust,  Settlement Management Trust or Personal Injury Settlement Protection Trust.


A settlement preservation trust can provide:

 

  • Space of mind for plaintiffs, guardians of minors, or profoundly injured plaintiffs.
  • Relief from the stress of tracking and paying bills for clients in transition.  Bills can be sent directly to the trustee who will make payments directly to vendors. A stored value card can be loaded up with money each month for day-to-day expenses, for ease of administration and recordkeeping.
  • Spendthrift protection 
  • An alternative means of generating periodic payments to the tort victim 
  • Provides a measure of liquidity to the settlement plan.
  • Flexibility to manage future change. It's possible that a plaintiff will experience a major change in his/her financial position at some point following the settlement of his/her personal injury claim or lawsuit. A Settlement Preservation Trust provides financial flexibility and controlled liquidity when such a change occurs. A Settlement Preservation Trust is a tool that best serves Plaintiffs who have future needs that are uncertain, unpredictable, subject to adjustment and/or event contingent. For example, payments might be increased from the trust during periods of unemployment.
  • Can be used with a structured settlement. If used in conjunction with a structured settlement, the trust can serve as a receptacle to receive periodic payments from the structured settlement for further recovery management and measured distribution
  • Can be used to hold and pay premiums on a life insurance policy insuring one or both parents a disabled minor plaintiff and a caregiver for an adult plaintiff.
  • Protection against factoring. On larger settlements, you can put a corporate fiduciary between the plaintiff and a factoring company.
  • Can be used to hold acquired assigned structured settlement payment rights, secondary market income streams or multi-streams by a fiduciary for a plaintiff with suitable risk tolerance and an understanding and acceptance of the strategy.  Fiduciaries contemplating buying such rights with fiduciary funds should familiarize themselves with the 2017 Revisions to the Life & Health Guaranty Association Model Act (#520) which have been adopted by 40 states as of August 2023.

 

Other Features/Advantages of a Settlement Preservation Trust for Personal Injury Plaintiffs

 

  • As interest rates rise, additional income accrues for the benefit of the plaintiff.
  • The trustee can manage the trust to accommodate changes in the plaintiff's tax profile. For example, if the plaintiff has significant medical expenses, then taxable income might be preferable to permit offsetting deductions.
  • As an example, when used in conjunction with a structured settlement one can protect structured settlement payments that were intended for college from wasteful dissipation by new adults.

 

Funding for a Settlement Preservation Trust (SPT) may take the form of a simple check or wire deposit. It does not require any Defendant/Insurer involvement. It can come from any source, including directly from the plaintiff (via cash settlement), or it can be fed by way of payments from a structured settlement annuity. 


What do Distributions from a Settlement Preservation Trust Look LIke?


Distributions can take the form of adjustable periodic payments, via check or ACH direct deposit, for medical health and tax needs, emergency needs and virtually any payment mode except life contingency. Limited personal discretion is a spendthrift feature of the SPT to protect the injured party.


Payments from the trust can be designed for both taxable and tax-free distributions.


The administration of the Settlement Preservation Trust is set up with the injured party in mind. 4structures.com, LLC has a number of excellent relationships with a number of trustees. One of the trustees allows beneficiaries to enjoy lower minimum deposits (one as low as $50) depending on type of trust) and lower ongoing fees than one might expect from a trust company.


Disadvantages of a Settlement Preservation Trust

 

  • There is a cost to establish a trust
  • There are ongoing trustee, maintenance, and asset management fees
  • Trust principal while conservatively managed to preserve principal, is not guaranteed and may fluctuate.
  • Interest inside the trust does not have the same tax advantages as a structured settlement.  Certain tax-deductible expenses may help mitigate taxes.

 

Work with an experienced, credentialed settlement adviser like John Darer CLU ChFC MSSC CeFT RSP CLTC, who can patiently explain the settlement trust options and explore its viability as a component of your overall settlement plan.

 

Last updated August 7, 2023

 

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New York settlement planner

Settlement Planning Trusts

Have a question about Settlement Preservation Trusts, or other settlement planning trusts for injury victims?  I'm here to help. Call me at 888-325-8640, or send me a message and I'll be in touch.

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