The Mechanics of Setting Up a Settlement Trust

Here at Amicus Settlement Planners, settlement trust is a topic that we often get asked about. People usually want to know: “What are the mechanics of setting up a settlement trust, and how do we actually go about doing it? Does the defendant have to pay directly to the trust, or can it come through our IOLTA account?”

Discussing the Settlement Plan

Here is how the process works: Before settlement or right at the time of settlement, we like to get on a phone call or talk face-to-face with you and your client. This allows us to talk in-depth about what the settlement plan is going to be. 

There are two main types of settlement trusts: special needs trusts (for disabled individuals receiving Medicaid or SSI), and settlement protection trusts (for non-disabled individuals).

If the client establishes a special needs trust, in most states, and based on current guidelines from SSI and Medicaid, the trust funds can first go to your firm’s IOLTA account and then to the special needs trust. (Note: there are some in the settlement planning profession who believe that it is best practice to have the special needs trust either be funded directly by the defendant or to first place the funds in a qualified settlement fund (QSF), and then fund the special needs trust from the QSF. In practice, we have not seen or heard of any issues as of the time of this writing with special needs trust funds first being deposited into an attorney’s IOLTA account.)

If the client establishes a settlement protection trust, then there are no government benefits eligibility concerns, and the funds for the settlement protection trust can always go first to the plaintiff attorney’s IOLTA account, and then the settlement protection trust can be funded from there. 

Choosing a Trustee

Beyond discussing what the settlement plan is going to be when we sit down with a client, we also talk about which trustee makes the most sense for the client — whether that is a family member or a third-party professional trust company. We always make sure the client understands the trustee relationship and how it works. That also means explaining the pros and cons of using a corporate trustee versus a family member.

Once the details have been ironed out, we draft the trust documents, get the settlement trust set up, and then the attorney funding the trust at the time of settlement.

Thinking of Setting Up a Settlement Trust?

So, if you are thinking about using a settlement trust or if you are wondering what the process is, the key things that you need to remember are:

  1. Typically, there doesn’t need to be any involvement from the defendant like there does with a structured settlement annuity.
  2. The funds can be paid into your IOLTA account first, and then the settlement trust can be funded from your IOLTA once you have a settlement plan in place with the plaintiff.

If you have any questions about setting up a settlement trust, give us a call now. We can help you figure out the settlement plan that makes the most sense for you.

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