Settlement Preservation Trust

Settlement Preservation Trust
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 also known as a Settlement Management Trust.

A settlement preservation trust can provide:
  • Relief from the stress of tracking and paying bills for clients in transition.  Bills can be sent directly to the trustee.
  • 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 or 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 structured settlement derivatives or secondary market income streams for a plaintiff with suitable risk tolerance and and an understanding and acceptance of the strategy.

What is a fiduciary?

A fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual business person. 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.

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 . 

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 or tax-free distributions.

The administration of the Settlement Preservation Trust is set up with the injured party in mind., LLC has a number of excellent relationships with a number of trustees. One of the trustees allows beneficiaries to enjoy lower minimum deposits (typically $50,000-$95,000 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  
  • Interest inside the trust does not have the same tax advantages as a structured settlement.

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

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