Blog - Settlement Planning

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Settlement Protection Trusts: A Guide to Safeguarding Assets

Secure Your Financial Future With a Settlement Protection Trust

Looking to safeguard your assets? A settlement protection trust could be the solution you need. This legal arrangement protects your wealth against various risks, ensuring it remains intact for your beneficiaries. Understanding how a settlement protection trust works and its benefits is crucial for effective asset management. Discover the ins and outs of this trust structure to make informed decisions about protecting your financial legacy.

Defining Settlement Protection Trust

Primary Purpose

A settlement protection trust is a legal arrangement that safeguards funds received from settlements, ensuring they are used for specific purposes. It is designed to protect these funds from being mismanaged or depleted. However, it does not protect eligibility for means-tested government benefits, such as Supplemental Security Income or some Medicaid programs.

Specific Benefits

  • Asset Protection: The trust shields the settlement funds from creditors and lawsuits, preserving them for the beneficiary's intended use.
  • Financial Security: By managing the funds prudently, the trust provides long-term financial stability for the beneficiary.
  • Tax Efficiency: Settlement protection trusts offer tax advantages, minimizing the tax burden on the funds and maximizing their growth potential.
  • Control Over Funds: Beneficiaries have input on how the funds are invested and distributed, ensuring their needs are met effectively.
  • Medical Insurance Facilitation: These trusts prioritize medical insurance facilitation, ensuring that beneficiaries have access to necessary healthcare services without financial strain.

When to Consider a Settlement Trust

Right Circumstances

A settlement protection trust should be considered in situations where there are concerns about undue influence or the beneficiary's financial management abilities. It is crucial when safeguarding assets for individuals who may not have the capacity to manage substantial sums responsibly.

Approval Process

The approval process for personal injury settlements differs based on whether the beneficiary is a minor, incapacitated, or competent adult. Minors and incapacitated individuals require court approval for settlements, ensuring that their interests are protected. In contrast, competent adults have more autonomy in managing their settlement funds.

Public Benefits vs. Flexibility

In large settlements, beneficiaries often face a trade-off between preserving eligibility for public benefits and having flexibility in managing their funds. A settlement protection trust offers a solution by allowing beneficiaries to retain access to government assistance while providing structured distributions for their needs.

Steps to Setting Up a Trust

Requirements for Court Approval

To establish a settlement protection trust, certain steps must be followed. When dealing with minors or incapacitated individuals, court approval may be required. This ensures that the trust is set up in compliance with legal standards, safeguarding the interests of vulnerable beneficiaries.

Court approval involves submitting a petition outlining the details of the trust, such as its purpose, beneficiaries, and proposed management. The court reviews these documents to ensure that the trust serves the best interests of the minor or incapacitated individual.

Autonomy in Distributions

Setting up a settlement protection trust offers significant autonomy in distributions for competent adults who are not receiving means-tested public benefits. Unlike other trusts that may have restrictions on how funds can be used, this type of trust allows competent adults to have more control over how and when distributions are made.

This flexibility enables competent adults to tailor the trust's distributions according to their specific needs and circumstances. It provides them with the freedom to make decisions regarding their assets while still ensuring protection and security for their beneficiaries.

Safeguarding Settlement Assets

Preventing Impulsive Decisions

Protecting settlement assets is crucial to ensure long-term financial security for beneficiaries. A settlement protection trust (SPT) plays a vital role in safeguarding these assets by legally separating them from the beneficiary's control. This separation prevents hasty or impulsive decisions that could deplete the funds.

An SPT acts as a shield, preserving the financial resources awarded in a settlement for their intended purpose. Instead of receiving a lump sum, beneficiaries receive scheduled disbursements according to the trust's terms. This controlled distribution method promotes responsible money management and ensures that funds are used wisely over time.

  • Prohibits immediate access to large sums
  • Encourages disciplined spending habits

Trustee's Role

In addition to asset protection, trustees oversee various aspects of the trust, including tax preparation for the injured party. They work closely with financial advisors and legal professionals to manage tax obligations effectively and ensure compliance with relevant laws.

  • Manages tax-related matters
  • Collaborates with professionals for financial guidance

Final Remarks

The importance of a settlement protection trust cannot be overstated. It offers a robust shield for settlement assets, ensuring long-term financial security and peace of mind. By understanding the benefits, timing considerations, and steps involved in setting up such a trust, individuals can safeguard their assets effectively.

For those navigating settlements or seeking to protect their assets, considering a settlement protection trust is a strategic move. The outlined key benefits and steps provide a roadmap for establishing financial stability and protecting assets for the future. Take action today to secure your financial future with a settlement protection trust.

Frequently Asked Questions

What is a Settlement Protection Trust?

A settlement protection trust is a legal arrangement that helps protect assets from creditors, lawsuits, or other claims. It provides a secure way to manage and distribute funds for the benefit of the beneficiary.

When should one consider setting up a Settlement Trust?

Consider setting up a settlement trust when you want to safeguard assets for future generations, protect assets from potential risks like divorce or bankruptcy, or ensure controlled distribution of wealth according to your wishes.

What are the key benefits of a Settlement Trust?

Key benefits include asset protection from creditors, control over how and when assets are distributed, tax advantages, privacy in wealth management, and ensuring financial security for beneficiaries.

What are the steps involved in setting up a Settlement Trust?

The steps typically involve choosing a trustee, deciding on the terms of the trust, drafting the trust document with legal assistance, transferring assets into the trust, and ensuring compliance with legal requirements.

How does a Settlement Protection Trust safeguard settlement assets?

A settlement protection trust safeguards settlement assets by legally separating them from personal ownership, providing protection against creditors' claims or lawsuits, ensuring controlled distribution according to the trust terms, and offering tax benefits for estate planning.

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Grasping Settlement Planning: Our Comprehensive Guide to Maximizing Your Financial Future

Understanding Settlement Planning

Settlement planning is a comprehensive strategy to manage funds from a legal settlement or award customized to meet the client’s objectives. It's designed to ensure long-term financial stability through wealth management and asset preservation. By forming customized strategies that cater to an individual's unique circumstances, settlement planning provides peace of mind and a sense of security for the future.

The crucial components of settlement planning include financial analysis, government benefit analysis, legal coordination, expert guidance, and ongoing support throughout the process. Each of these factors work together to best serve the individual and ensure effective wealth management and a high quality of life, while avoiding pitfalls such as loss of essential government benefits such as Supplemental Security Income (SSI) or Medicaid.

Strategic Importance

Plaintiff’s Perspective

Settlement planning is paramount for plaintiffs as it provides a clear roadmap for managing their newfound financial resources and avoiding the loss of any government benefits. Through expert legal and financial guidance, plaintiffs are empowered to make informed decisions about their future. Settlement planning empowers plaintiffs by giving them the tools to navigate through complex legal and financial decisions effectively. 

Attorney’s Role

Settlement planning attorneys guide clients through the legal and financial aspects involved in managing a substantial sum of money while preserving eligibility for essential benefits such as SSI and Medicaid. They often collaborate with other professionals like financial advisors, tax advisors, trust companies, and case managers, to create a comprehensive plan aligned with the client's goals. Through their expertise, they protect clients from potential pitfalls associated with large settlements, such as tax consequences, mismanagement of funds, and loss of public benefits. 

Not only does a settlement planning attorney protect injured parties, or claimants, from significant financial loss, but they also protect litigation firms from liability if they neglect to effectively advise their client as to the settlement’s impact on their tax liability and public benefit eligibility prior to their client receiving settlement proceeds. 

An attorney with particular expertise in settlement planning can also provide advice on sophisticated planning tools such as a Qualified Settlement Fund or Plaintiff Recovery Trust in addition to designing a settlement plan for complex matters involving many parties as in mass torts and class actions.

Asset Preservation & Long-Term Security

Asset preservation is essential to safeguard funds from unnecessary depletion or loss. Settlement planning attorneys use various strategies like trusts, annuities, and insurance to protect assets for future needs. By preserving assets, we ensure that the funds are available when required the most.

For instance, setting up a trust can help shield a portion of the settlement funds from immediate access while ensuring they remain intact for specific future purposes. Annuities provide a steady income stream over time, offering protection against overspending or financial mismanagement. Insurance products such as life insurance or long-term care coverage can further secure the resources for unforeseen circumstances, especially if the injured party requires lifetime care.

By focusing on asset preservation, we maintain financial stability and security for the long term. This approach enables us to meet our future needs without worrying about resource depletion due to imprudent spending or market fluctuations.

Services Offered

Comprehensive Planning

Comprehensive planning involves a detailed analysis of the individual's circumstances — such as healthcare needs, education expenses, housing, transportation, caregiving, travel, and entertainment — to create a holistic plan. For example, if a client requires specific home modifications due to injury, we ensure that these needs are factored into planning. By addressing financial, legal, and personal goals comprehensively, settlement funds are utilized effectively to enhance overall quality of life. 

Maximizing Settlement Funds

Financial analysis is crucial in determining an individual's current and future financial needs. Working alongside Certified Financial Planners helps us assess income requirements, budget considerations, and future expenses to develop realistic plans that align with each client's unique circumstances.

This involves strategic approaches to ensure optimal utilization of funds. We partner with financial advisors to carefully consider investment diversification, tax-efficient strategies, and asset allocation techniques. For example, we employ tax-efficient strategies to minimize tax liabilities on income generated from the settlement. By strategically planning, we aim to maximize the potential growth and longevity of settlement funds.

Settlement Planner vs. Settlement Planning Attorney

Often, there is a misunderstanding in the difference between a settlement planner and an attorney who does settlement planning. A settlement planner – also referred to as a structured settlement broker – assists injured parties in selecting a particular financial product, usually a structured settlement annuity. A settlement planning attorney is a lawyer who has no financial interest in the outcome of the settlement plan but has specific expertise in the process and can lead a team of other experts. 

Structured settlement brokers must be licensed to sell insurance to sell structured settlement annuity products. This type of annuity is an insurance product that must be purchased by a defendant for the benefit of a plaintiff. The annuity payment stream is customized, and there is a guaranteed interest rate, or internal rate of return, and the entire payment is not taxable income to the payee. Brokers often work exclusively with either plaintiffs or defendants, and will outline the financial and tax advantages to the plaintiff when the defendant purchases these products on their behalf. However, there are downsides to these products as well.

The settlement planner is typically not a practicing lawyer. If they only hold an insurance license, they have no fiduciary duty to the client, meaning they have no obligation to act in the client’s best interests. Proposals may not disclose the internal rate of return of the funds or the broker's commission. The annuity payments are static and cannot be modified even if the client’s circumstances change. Without the added protection of a trust, clients can be subjected to aggressive marketing to sell their annuity payments for pennies on the dollar.

By contrast, a settlement planning attorney has no financial interest in the outcome of the settlement plan. If they do, they have a duty to disclose this to the client and put their license to practice law at risk if they fail to do so. A highly experienced settlement planning attorney usually has a probate and estate planning background. Some attorneys specialize even further to focus on planning for persons with disabilities, working with catastrophically injured individuals, and more complex litigation. These attorneys help lead a team of experts to craft an individualized holistic plan that is as flexible as possible with administrative checks and balances. They also oversee integrating other experts, such as structured settlement brokers, certified financial planners, case managers, tax experts, benefits coordinators, life care planners, lien resolution experts, trustees, and other professionals, to bring together additional resources for an injured party’s life after settlement that helps the funds last as long as possible while preserving government benefit eligibility.

Ongoing Support

Settlement planning isn't a one-time task. It's an ongoing process requiring continuous monitoring and adjustments over time. Ongoing support from trust administrators ensures that our plan remains relevant as personal and legal circumstances change. Regular reviews allow us to make necessary modifications and maintain our long-term financial security. 

Conclusion

Settlement planning is not just about money. It is about shaping your future. With proper planning, we can make informed choices that align with our long-term goals. Seeking the guidance of a settlement planning attorney ensures that funds are used wisely for our well-being and future, particularly for persons who have catastrophic injuries or those who also depend on government benefits to meet their basic needs.

Settlement planning provides support during these critical decision-making processes. We don't have to navigate this alone. Settlement planning teams are there to aid in these life-changing decisions. They offer expertise and advice on managing funds responsibly and making choices that will positively impact our lives in the long run.

Frequently Asked Questions

What is settlement planning?

Settlement planning involves creating a comprehensive legal and financial plan for individuals who have received or are expecting to receive a large sum of money, often from a litigation settlement. It aims to create a legal framework with checks and balances that maximizes the longevity of the funds, coordinates the funds with government benefits, and enhances the person’s quality of life. 

Why is settlement planning important?

Settlement planning helps individuals make informed decisions about their finances, protect their assets, and secure their future. It takes into account various factors such as taxation, government benefits, healthcare needs, and family dynamics to create a tailored plan.

What services are typically offered in settlement planning?

Services may include legal analysis, financial analysis, investment management, tax planning, estate planning, special needs trust establishment, life care planning, public benefit preservation and coordination strategies, and guidance on structured settlements. These services are designed to address the unique financial challenges that come with receiving a substantial sum of money.

How does hiring a settlement planner impact one's financial future?

Hiring an experienced settlement planning attorney can significantly impact one's financial future by providing personalized guidance in managing and preserving the funds received from a legal settlement. 

How does settlement protection work in the context of settlement planning?

Settlement protection involves implementing measures such as trusts to safeguard the funds received from legal settlements against potential risks like unforeseen expenses or public benefits loss. This ensures that the individual continues to benefit from their award over time.

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Book Review: Administering the California Special Needs Trust: A Guide for Assisting a Person with a Disability as Trustee of a Special Needs Trust

This review is from: Administering the California Special Needs Trust: A Guide for Assisting a Person with a Disability as Trustee of a Special Needs Trust (Paperback)

As a special needs planning attorney and director of a non-profit that administers special needs trusts this book is an essential resource for me, my staff, and clients. While written for California trustees of special needs trusts, these trusts in particular are written to conform to federal statutes and policy. Each state may have its own culture, but it is extremely helpful and in fact, very little is only applicable to California. I recommend this exhaustive guide to colleagues and clients as it is very well written without getting mired down in legalese.

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The New MSA Reporting Requirement And The Probate Practictioner

Many probate practitioners advise and support litigation firms and obtain probate court approval of pre-suit settlements. There is a new CMS (Center for Medicare and Medicaid Services) reporting requirement, Section 111 of the Medicare, Medicaid & SCHIP Extension Act (MMSEA), 42 USCS §1395(y)(b)(8), effective July 1, 2009 that we need to be prepared to advise litigation firms and the court when serving as Guardian Ad Litem. Practitioners are already accustomed to resolving Medicare and Medicaid liens for past medical services before finalizing a settlement in liability and PIP cases. However, as of July 1, 2009 they must also consider future medical expenses for their client and evaluate whether their client’s situation triggers the new reporting requirement. This has generated wide discussions among settlement planning attorneys and structured settlement professionals whether this triggers the use of Medicare Set Aside accounts in these cases now and in the future. Unfortunately, CMS has enacted this new requirement without any regulations or procedures, and common review and enforecement practices may vary regionally. There are differing opinions among professionals as to the impact of the new reporting requirements and the effect on our clients.However, CMS officials reportedly comment that the purpose of the enactment is to ensure that any funds allocated for future medicals are to be spent before any claims are submitted to Medicare for payment, and CMS is to be notified when future medicals were a consideration in reaching the settlement. Collegues reportedly have encountered clients with large settlements who have already had Medicare refuse to pay providers.

An insurer has to report the settlement to CMS if the Plaintiff is: (1) a current Medicare beneficiary, or reasonably expected (i.e. a pending appeal) to qualify for Medicare within 30 months of settlement, and (2) the settlement is over Two Hundred Fifty Thousand Dollars ($250,000.00.) If the claimant meets the threshold for reporting, liability insurers, including self-insured entities, must complete a questionnaire/notice of the settlement and submit it electronically to CMS. Failure to do so is a $1,000/day penalty per claim. The Department of Justice is enforcing these requirements against all parties to the settlement, including Plaintiff counsel, and the Plaintiff themselves. All of us who advise counsel or the court with regard to settlement agreements need to be vigilant for our clients and the beneficiaries, and be aware of future developments as CMS forms policies to implement and enforce the new requirements.

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Special Needs Settlement Planning

If you are litigator, particularly a trial lawyer focused on Personal Injury, we can provide you with valuable assistance in the highly specialized area of Special Needs Settlement Planning. As you probably know, Special Needs Settlement Planning encompasses a comprehensive set of legal services that often prove pivotal in the successful long-term settlement of personal injury cases. As one of the few attorneys in the country with significant experience and training in this particular area of the law, Michele Fuller can help you preserve your clients’ eligibility for public assistance during settlement. She can also evaluate and address the many interrelated issues that often accompany complicated personal injury cases. These include: special needs trusts, Medicare and Medicaid lien resolution, Medicare Set Aside (MSA) arrangements, court approval of proposed settlements, creation of qualified settlement funds and structured settlement planning, among others.

It is important to note that trial lawyers have been held liable for failing to recognize and advise their clients on the effect a settlement may have on their eligibility for other benefits. This helps explain why litigators focused on Personal Injury and related practice areas are increasingly turning to Michele for Settlement Planning advice and counsel. We invite you to explore some of the articles below to learn more about the basics of Settlement Planning. Or, please contact us as soon as possible for assistance with a case you are currently settling. We welcome the opportunity to work with you and help you protect the best interests of your special needs or personal injury clients.