Setting Up a Settlement Trust for a Competent Adult

HomeTrusts and Asset ManagementSetting Up a Settlement Trust for a Competent Adult

In most competent adult settlement situations, it is common for attorneys to feel that competent adults can make decisions for themselves, so they settle a case, give the client the money, and hope for the best. 

In some cases, clients are savvy enough to find a financial advisor or do their own investing and make wise financial decisions. In many situations, however, if the client is not financially sophisticated or has never had the opportunity to manage money, giving that client any amount of money is likely to result in them not making wise financial decisions, even if the client is deemed as a competent adult. 

One traditional option in these types of situations is to place settlement funds into a structured settlement annuity, and this can be a great option for many clients. However, given historically low-interest rates and the lack of liquidity in annuities, many attorneys do not like the idea of placing a competent adult’s money into a structured settlement annuity— which is understandable. 

A potentially great solution for many competent adult clients is to establish a settlement trust (often called a settlement protection trust or a settlement preservation trust). 

We believe that these settlement trusts make sense for a variety of reasons as we outline below. 

Funds Are Managed But Still Accessible

One of the reasons why a settlement trust can make sense for a competent adult is that the client can still access those funds when they need them, whether it be for a house or a car or monthly expenses. 

However, since the settlement funds are inside of a settlement trust, the third-party trustee of that trust can help the client manage or invest the funds, and make wise financial decisions.

Protection From Predators

A settlement trust also protects a competent adult from predators, such as creditors, family members, friends, or other people that may try to take advantage of them or ask the client for things like loans or gifts. 

The settlement trust gives your client the ability to say, “Look, I wish I could help you, but my funds are in a settlement trust, and I would have to go to the trustee to ask for that, and they are going to say no.” This separate between the client and the funds — this lack of direct access to their own money — is a great protection from predators (and from a client’s own bad decisions).

The third-party trustee also acts as a sounding board for financial decisions. The trustee helps the client and makes sure that the settlement money that you as their attorney have worked hard to get them lasts well into the future. 

So, if you are working with a competent adult and you are worried about your client’s financial sophistication, give us a call. We have helped hundreds of attorneys figure out which option is best for their adult clients, and we’d love to help you and your client as well.

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