Settlement Protection Trusts

A Guide To Settlement Protection Trusts

If you are looking at which type of trust is best for your needs, you probably should know about settlement protection trusts. Here is more about this option.

What Are Trusts?

A trust is a tool that allows one party to hold assets for another. The person creating the trust commonly referred to as a grantor, trustor or settlor, is the one who places the money in the account. The trustee then governs the trust according to the terms it was created under. These are established with a written document.

What Are Trustees?

The trustee, also known as a fiduciary, is someone trusted by the trustor to uphold the trust terms. This individual has no conflicts of interest with the beneficiary and does not take funds from the trust. The trustee can be a person, business or other entity.

What Are Settlement Protection Trusts?

A settlement protection trust is a tool that financial institutions use during personal injury settlement cases designed to protect the beneficiary’s assets. These are irrevocable grantor trusts. You may also have heard of them as personal injury management, settlement planning, settlement management and personal injury protection trusts. The benefits of this option include the following:

  • Peace of mind
  • Relief from bill-related stress
  • Spending protection
  • Another means of providing payments to the victim
  • Liquidity for the settlement plan

How Do They Help Personal Injury Plaintiffs?

In a personal injury case, the beneficiary is the plaintiff. Other ways this type of trust helps personal injury plaintiffs include:

  • Rising interest rates generate additional income for the beneficiary
  • The trustee manages it to accommodate differences in the beneficiary’s tax return
  • For minors, it protects their assets from greedy adults

Funding for the trust can be a check or wire transfer. It doesn’t require insurance to get involved at all. It can be put into the trust or come in annual deposits.

What Do Distributions Look Like?

Distributions from this type of trust are periodic payments in the form of checks or direct deposits that can be used for medical expenses, tax payments, emergencies and other payments unrelated to daily living costs. That is because the money is designed to protect beneficiaries, so it is established to avoid frivolous spending.

The distributions can be taxable or tax-free based on how the trust is established. The proper way to develop an account is with the injured individual in mind. Ideally, that will mean distributions that cover the beneficiary’s needs with minimal costs to keep the account running.

What Are the Disadvantages of This Type of Trust?

While there are a lot of advantages to this type of trust, there are also disadvantages. The most significant disadvantages of this type of trust are that:

  • There is a fee to establish it
  • There are regular fees to keep it running
  • The trust principal fluctuates
  • The trust’s interest does not have tax advantages

If you’re facing a personal injury case, this might be the best option for your needs. Keep this type of trust in mind to reap the benefits mentioned above.

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