One question we often get asked is: “Does my client need a settlement trust?” That is a very good question — and in this article, we will talk about the reasons why you might consider using a settlement protection trust (also commonly called a settlement preservation trust) in a situation where the case does not involve a minor. Just to be clear, we often use these types of trusts in minor’s cases, but we will talk about those in a different post.
Why Set Up a Settlement Protection Trust for Adult Clients?
If your client is an adult who is not necessarily on government benefits and do not need their Medicaid or SSI protected, and you feel like that they may not be able to manage their own funds and may need a little more protection from themselves or other people, a settlement protection trust or settlement preservation trust can be a really good idea.
Here is how it works: The funds from the settlement get deposited into a settlement preservation trust that we can draft and create for you. The funds are then held with a trustee and invested for that client so that the funds are earning interest and growing over time. In this type of arrangement, the clients still have access to the funds — they just have to go through the trustee.
Setting up a settlement protection trust with a trustee provides a layer of protection for your client from family members or from friends who are looking to get a piece of your client’s settlement for whatever reason. Essentially, that settlement trust allows that client to be able to tell their friends, family, or whoever it might be: ”Look, I’d love to help you, but my funds are in this trust and I have to go through my trustee.”
So, if you have a client that you feel may be in a similar situation (i.e. they would benefit from a little distance between themselves and the settlement funds), give us a call and we can answer any questions you may have.