What Can the Trust do to Help My Client Beyond Settlement Preservation?

By Guest Author, Evelynn Passino, J.D. – Executive Director of Pooled Trust Services

If your client does not have needs-based public benefits, you might be thinking a trust isn’t necessary or even desirable. You might be thinking a structured settlement provides enough protection because it prevents them from spending all of their money at once; however, a structured settlement can be sold on the secondary market. A structured settlement by itself won’t protect a brain-injured client from making ill-informed decisions. It won’t protect a client with substance abuse issues from quickly dissipating the money they get periodically. It won’t protect a vulnerable client from those who would take advantage when they have money in their hands. In short, a structured settlement alone doesn’t afford a client with enough protections.  Instead, pairing a structured settlement with a settlement trust provides effective settlement preservation benefits.  Preservation of the recovery is critically important, but that’s not all a settlement management trust can do to help injury victims.  This post explores how a settlement trust can help an injury victim successfully manage their recovery for life.

Settlement Trusts Can be an Important Tool in Incapacity Planning

A settlement preservation trust can be a standalone trust, drafted specifically for the client, or the client can join a pooled trust. The largest advantages of a pooled trust over a standalone trust are that they tend to have much lower fees and can be joined easily and quickly because the trust already exists.

Utilizing a pooled settlement trust also serves two important functions related to incapacity. First, a settlement preservation trust works well as an alternative to guardianship or conservatorship. Guardianships can be incredibly restrictive, costly, and time-consuming, and may be overkill if the only issue is settlement management. While a court order is required for minors and those who have lost capacity, a pooled settlement trust is quick and easy to set up for a competent adult, requiring little more than the completion of a joinder (a contract creating a sub-account within the pooled trust). Second, if the client becomes incapacitated during the life of the trust or needs to qualify for needs-based public benefits, settlement preservation trusts can be drafted to transfer assets to a special needs trust. This allows a client to have the benefit and flexibility of using the funds in the manner they wish to use them, but the ability to protect and shelter the funds from income as well as asset thresholds if the need arises. This is an area where combining a trust with a structured settlement is especially helpful. If the structure is set up to pay a certain amount every month for the rest of the client’s life, and suddenly they need to qualify for Medicaid, changing or redirecting the structure can be very difficult. If the payments are already directed to a trust, or if the trust is funded with a lump sum, the client has control over when and how much comes out. At any time, they can stop the flow of money and convert the settlement trust to an SNT.

What are the Downsides to Setting Up a Settlement Trust?

The downsides to using a settlement trust are that it costs money to maintain, the trust will be irrevocable, and the client must still work through a trustee to some degree for access to funds. For the client who insists on having full control over his or her funds, any one of these things could be a deal-breaker. While there is cost to maintaining a trust, the cost is generally outweighed by the trust’s investment income, as well as the convenience and protections discussed above. Irrevocability affords benefits, such as spendthrift and creditor protections, but it also means the client can’t suddenly decide they no longer want the trust, at least not without a generous right of withdrawal. Working with a trustee can be frustrating for a client because the client often wants full control. The trustee has certain legal and professional duties to uphold, which includes a duty to act in the client’s best interest, which may conflict with what the client desires. A good trustee can balance their own duties with the client’s wishes, but that does not guarantee the two will always work in perfect harmony.

Trustees Offer Experience, Expertise, and Convenience

Speaking of fees and costs, when you pay a trustee, you’re paying for their experience and their expertise. Clients who perhaps could not afford to make larger purchases prior to their accident, such as a home or vehicle, will benefit from someone walking them through the process and helping them evaluate potential purchases. Pooled trusts can also provide information about disability-related services your client might not know about, like care management and coordination.  They can educate the client about best-practices, like how to pay a caregiver using funds from the trust while limiting liability. This is especially helpful in situations where a friend or family member is providing these services unpaid. Paying this person directly from the trust makes the trust the employer of record, which creates liability for the trust and the client. Many trustees utilize the service of separate company which becomes the employer of record. Not only does this reduce liability, the caregiver gets a regular paycheck, is covered by workers compensation insurance, and may have access to additional benefits like health insurance. Finally, a pooled trust can assist with managing the client’s finances. The trust can take over the chore of writing checks every month, functioning like automatic bill-pay.

Joining a pooled settlement management trust is an important decision; one with long-ranging consequences and implications for the future. It will not be the right fit for every situation, but it can make a world of difference for those who need the additional protection, assistance, and support.