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When a person is injured, they can suffer any number of life-changing medical complications. In some cases, they may be rendered incapacitated. Legally, this means the person is no longer capable of making some—or possibly any—decisions on his or her behalf. The law provides various options to ensure the incapacitated person’s needs are met. On one end of the spectrum is guardianship, which can result in delegation of nearly all of the incapacitated person’s rights to another person, known as the guardian or conservator. While guardianship is sometimes the best option, other options must be explored to avoid taking away more than is necessary. Why use a sledgehammer when a scalpel will do?

This post will explore how guardianship compares to one alternative: the settlement trust. A brief overview of each is provided along with a discussion of how the two differ in terms of functionality, cost, risks, and benefits.


While the definition varies by state, generally a guardianship may be established when an individual’s capacity is diminished. A judge or magistrate will determine whether the individual lacks capacity and then appoint someone to make decisions for the incapacitated person, if needed. The court also determines the scope of the guardianship. Guardianship may be over the person, the property, or both. A guardianship over the person includes healthcare and other personal decisions. Guardianship over the property includes decisions about the individual’s money or assets. Guardianship may be full (plenary) or limited. The majority of guardianships are plenary over both the person and property, which essentially strips a person of all delegable rights. Most states now have statutes directing that guardianship be as limited as possible and preventing the court from creating a guardianship unless no less restrictive alternatives are available.

Settlement Trust

One alternative to guardianship, at least with regard to property, is a trust. Trusts offer management and oversight of the incapacitated person’s funds, which satisfies the same goals sought in establishing a guardianship: protection, preservation, and prudent decision-making. A settlement trust is a repository for settlement funds, whether received as a lump sum or as periodic annuity payments, and dispersed in accordance with terms of the trust by a trustee.


Who serves and what can they do?

One of the primary differences between a trust and guardianship is who handles the money and how much authority they have. Guardians are appointed by the court and must meet minimal qualifications which vary by state. Guardians are often related to the Ward and while some states require that they complete a few hours of court-approved training, there are no educational or experiential requirements. A guardian of the property gains legal authority over their Ward’s property. This authority is similar to a power of attorney in that the guardian may have virtually unrestricted access to the Ward’s bank accounts, home, vehicle, personal property, etc., and the ability to dispose of such property. Court approval may be needed to sell certain kinds of property, like the Ward’s home. Guardians have a fiduciary duty and as well as duties to act in good faith and in the best interests of the Ward.

The trustee of a settlement trust is selected by the grantor, who is also the beneficiary because the trust is established with the beneficiary’s own funds. If the trust is a pooled trust (where the funds of multiple beneficiaries are held in sub-accounts under one master trust), the trustee will be a 501(c)(3) non-profit corporation with trust officers or administrators managing the distributions. These companies work with legal counsel to establish policies for making distributions that comply with applicable law and industry best practices, like having a distribution committee that makes decisions for high-dollar or unusual distribution requests. Trustees have a number of duties as defined by state law, including duties of loyalty, good faith, and impartiality, in addition to fiduciary duties.

How does the Ward or beneficiary access their funds?

A guardian has authority to withdraw funds directly from the Ward’s accounts. While these withdrawals must be for the benefit of the Ward, there is no intermediary or roadblock other than the requirement to provide an annual accounting and seek court approval for certain purchases.  Worse yet, for a minor, they get all of the assets held in a guardianship when they turn age 18 if they are competent.

A trustee makes distributions in accordance with the language of the trust, which may have strict standards or offer wide discretion. A settlement trust typically gives the trustee discretion to use funds for the health, education, maintenance, and support of the beneficiary. This means the beneficiary does not have unrestricted access to his or her funds. They must follow a process of requesting funds, waiting for approval, and then waiting for funds to be delivered.

What happens to the assets?

The guardian generally has discretion to decide what happens with the beneficiary’s property so long as it is in the best interest of the beneficiary.

Funds held in trust are invested and managed by experienced professionals to make them last as long as possible, potentially past the death of the beneficiary.

What happens to leftover funds?

When a Ward dies, the guardian’s authority ends and any remaining funds pass according to the will, laws of intestacy, or any governing contracts.

When a trust beneficiary dies, the trust terminates and the funds pass to the remainder beneficiary or according to other terms of the trust.

Is it permanent?

Once a guardianship is established, it exists until the death of the Ward or the court restores the person’s capacity. The person serving as guardian may change (the can resign or be removed by the court), but the Ward is under the jurisdiction of the court until the court decides otherwise.

A settlement trust irrevocable. This means the beneficiary cannot “undo” or liquidate the trust. The money will stay in the trust until it is distributed in accordance with the terms of the trust. However, at the beneficiary’s direction, the trustee could be removed or funds could be transferred to another pooled trust.


Guardians may recoup the reasonable cost of their services, including the cost of hiring professionals to provide advice.

There are costs for setting up a trust, including legal and start-up fees. Trustees may also charge for their services, as well as hire professionals, such as asset managers. Trustee and asset management fees are typically assessed as a percentage of the assets held in trust. Using a pooled trust is one way to minimize these fees because they are administered by a non-profit. Further, if priced appropriately and managed properly, the costs of the trust will be outweighed by the gains.

Impact on Public Benefits

While compensatory damages for personal injuries are not taxable, they will count as income for purposes of determining eligibility for needs-based benefits like SSI and Medicaid. Guardianship offers no protection in this regard. If the beneficiary takes a lump sum, or the proceeds are structured in an annuity that pays more than the monthly income and asset cap, the beneficiary may lose their benefits or jeopardize qualification in the future.

While a settlement trust is a countable resource, it can easily be transferred into a trust with appropriate special needs language. If done properly, eligibility for benefits like SSI and Medicaid would be preserved.


Despite court oversight, there are numerous examples of guardians who have mismanaged or abused the assets of their Ward. If the guardian has already spent the funds or sold the property, there may be little anyone can do to regain those assets. Even non-abusive guardians are not without risk because their financial literacy could be minimal. While lack of financial literacy for someone without many assets may not be the end of the world, it can create a minefield for the guardian of someone with a large settlement. The guardian may not fully understand the consequences of their actions, investment strategies, or the best way to provide for the injured person’s future.

There are few risks associated with trusts that are managed by a professional trustee and they are the risks inherent with any investment. However, funds are generally invested conservatively and suffer few losses, if any.


The benefits of guardianship are that there is little risk to the beneficiary when a trustworthy person is selected, and funds can be accessed quickly. The experience is also much more personal and creates far fewer hoops to jump through.

The benefits of using a settlement trust are numerous. In addition to the protection of having a professional trustee, low costs, and options for low-risk investment, settlement trusts contain provisions that actively protect the funds and ensure their longevity. When paired with a structured settlement, settlement trusts offer protection from being sold on the secondary market, which is a good option for impulsive beneficiaries who may not understand the negative impact of selling their annuity. A structured settlement also ensures longevity because annuity payments are periodic, so the beneficiary will only ever have access to a portion of the award. Finally, a settlement trust can include spendthrift provisions, which offer protection from creditors.


It is important to recognize that there is no one-size-fits-all solution for any injury victim. The “right” solution will depend on the individual’s diagnosis, prognosis, financial situation before and after the accident, level of vulnerability, network/support system, long-term goals, short-term needs, and anything else that could be relevant to planning for their new and unique set of life circumstances. A settlement trust can be a great solution for injury victims with diminished capacity who have limited assets beyond their settlement. Structured properly, a settlement trust offers the oversight and protection sufficient to qualify as a “less restrictive alternative,” making guardianship unnecessary for some individuals. It allows surgical precision where the broad sweep of a sledgehammer could do more harm than good.

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