by Thomas D. Begley, Jr., CELA
Settlement Protection Trusts can be very useful tools in the settlement of a personal injury case. A Settlement Protection Trust is very flexible. However, it cannot be used where an individual is receiving means-tested public benefits. A Settlement Protection Trust is essentially a Support Trust designed to provide for the health, education, maintenance and support of the trust beneficiary.
A budget is prepared and the trustee can often simply write a monthly check to the beneficiary, so that the beneficiary can pay all of his or her monthly bills. In other cases, the beneficiary will simply obtain a credit card and send the credit card bills to the trustee for payment, so long as the expenditures are within the agreed-upon budget. The budget should be designed so that the money will last as long as the plaintiff lives, if that is possible.
When to Use a Settlement Protection Trust
Minor or Incapacitated Person—Plaintiff Not Receiving Means-Tested Public Benefits
In these situations, a Settlement Protection Trust is ideal. If there is a minor or incapacitated person, the monies can be deposited into the Settlement Protection Trust rather than the probate court.
In cases involving a minor or incapacitated person, the establishment of the Settlement Protection Trust must be approved by the court.
Competent Adult Not Receiving Means-Tested Public Benefits
Where a competent adult is not receiving public benefits, both New Jersey and Pennsylvania allow distributions to be made from income and principal without court approval. The beneficiary enjoys the advantages of the Settlement Protection Trust, and the trust serves to protect the settlement from being squandered by the injured plaintiff or being coveted by family members and friends.
Large Settlement—Client Receiving Means-Tested Public Benefits
In many large settlements, the client may be receiving SSI and Medicaid. In some cases, the Medicaid benefit may be modest and, therefore, unnecessary. In other cases, the Medicaid benefit may be significant, but can be replaced by insurance under the Affordable Care Act or a combination of Medicare and private insurance. In these cases, it is often beneficial to consider giving up the public benefits in exchange for greater flexibility in administration and avoiding the Medicaid payback.