We have all heard the adage that diversification is key for attaining long range financial goals. The same can be said for settlement planning for claimants. The industry is expanding and more solutions are available for claimants to achieve their long-term needs and goals. Trusts, when used in combination with structured settlements, offer a powerful and versatile combination to benefit all of the settling parties. Trusts allow part of the proceeds from a settlement to be managed for the benefit of the plaintiff or trust beneficiary and provide an opportunity for growth and flexibility and/or liquidity for future needs. Trusts can facilitate better tax and estate planning along with overall better administration of the settlement to further protect the claimant. The combination of a structured settlement and a trust solves the unique settlement planning challenges for the recipient of a personal injury award.
Several types of trusts exist for settlement purposes: Special Needs Trusts, Settlement Preservation Trusts and Pooled Trusts.
Special Needs Trusts
Special Needs Trusts (SNTs) are, as the name implies, special purpose trusts that allow for the settlement funds, including future structured settlement payments to be made to the SNT. This approach allows for valuable government benefits to continue to be made available to the plaintiff since assets held in an SNT are not counted when determining eligibility for government benefits programs. SNTs represent an excellent planning tool for the critically injured plaintiff.
Settlement Preservation Trusts
A Settlement Preservation Trust (SPT) is a term that is commonly used to describe a “Grantor Trust” in which a corporate trustee manages funds for growth and liquidity needs. These trusts may also be referred to as asset preservation or asset management trusts. The main advantages of SPTs are protection of the funds held in trust from early dissipation, creditor protection (depends on terms of trust), flexibility in meeting unknown expenses, and professional and disciplined asset management and coordination with the structured settlement.
Pooled Trusts use a “master trust” and have many individual sub-accounts for each trust beneficiary. Basically, all of the funds for each beneficiary are comingled in a master trust and the manager of those funds typically invests in a conservative and blended approach. Pooled Trusts (PTs) are used primarily for smaller amounts of money and some PTs can also be created in a Special Needs Trust format. Funding amounts can begin at $50,000 for some pooled trusts. Trusts can offer flexibility in timing of payments, protection of the settlement proceeds, flexibility in types of investments, access to funds when the claimants need them and no need to sell future payments to a factoring company. Structured settlement payments can pay into the trust to help fund the trust over time with a tax-free income stream adding an important guaranteed component to the trusts assets.
The AVITAS Team at Millennium Settlements often uses a combination of structured settlements and trusts, fixed indexed annuities and the Settlement Plus™ program to create unique settlement solutions for claimants. By working with financial advisors, reputable trust companies and trust attorneys across the United States they can help your clients decide if this combined solution is right for them.