A settlement protection or support trust segregates funds recovered from a personal injury settlement to avoid jeopardizing eligibility for means-tested public assistance. This includes Medicaid (including many Medicaid waiver programs), SSI, and federally assisted housing.
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Subrogation
When you receive an injury settlement, several other companies may be entitled to subrogation rights in your case. For example, your healthcare provider will generally want to recover the costs for the medical treatment they paid (which may be more than $150,000). They often file a subrogation lien against the offending party or their insurance company.
A personal injury settlement trust will typically be set up to prevent this. It is also important to ensure that any interim payments or charitable donations are placed in a trust so that they are not counted for means-tested benefit assessment purposes. For example, the first payment received is disregarded for 52 weeks after it has been awarded, whereas any subsequent payments would be considered for means-tested benefits. Your personal injury attorney may also be able to negotiate with the insurance companies to reduce or dismiss subrogation claims.
Benefits
Injuries from car accidents, slips and falls, and medical malpractice can result in permanent disabilities. Often, these injuries are life-changing and require substantial money to cover ongoing care.
Unfortunately, these settlements can jeopardize means-tested government benefits like Medicaid, SSI, Section 8 housing, and SNAP (food stamps) eligibility. By placing these funds in a trust, they will be protected from a reduction in these essential services.
The trustees who manage these trusts can arrange expert money management to ensure the assets are not squandered. This is important, as many injured parties are not sophisticated in managing money and can be subject to pressure from spouses, significant others, family, and friends who want their share of the award. These trusts also help protect the damages award from claims by creditors and a future divorce. A personal injury trust can contain one or multiple sub-trusts.
Taxes
A settlement protection trust can help mitigate taxes payable with a personal injury lawsuit. This is because the first payment from a PI Trust is disregarded for means-tested benefit assessment purposes for 52 weeks. However, the funds must be considered for means-tested care and support services assessments after this period.
A PI Trust can also be a practical solution where the injured party has difficulty managing large sums of money. They may have unstable mental conditions, or they might be at risk of being exploited by relatives and friends who want to take advantage of them. A ring fence can protect the funds from being wasted or misused.
Wills
When someone receives a large amount of money from a settlement, a will allows them to ensure their accounts and property are distributed according to their wishes when they pass away. A will is an important component of financial recovery for individuals who have been injured.
The trust deed will detail the trustees, beneficiaries, and when they are entitled to distributions. It may also cover how the trustees must manage the funds and all other stipulations.
It is usually best to set up a trust as soon as it becomes clear compensation will be received. This ensures the money does not count as capital for means-tested benefits such as housing and care. It can be difficult for an injured person to resist the temptation to spend their damages award, and a professional trustee is often required. The trustees will be able to ensure that the injured party is supported for their lifetime and that any money left at death is distributed appropriately.
