How Structured Settlements and Trusts Work Together to Protect Your Client's Recovery Long after the Settlement Ends
Category: Structured Settlements
We hear the same thing from attorneys over and over: I secured a substantial recovery for my client, but I am concerned they are going to blow it. What can I do?
The reasons why they feel that way about their client vary. The client suffered a mild brain injury but isn’t legally incompetent. The client has a history of addiction or a gambling problem. The client has friends or family members who may try to take advantage. The client is not mature or financially savvy. The client is too nice and doesn’t know how to say no. The list goes on.
One method that takes care of clients in any of the above situations is to pair a structured settlement with a trust. A structured settlement is created when the defendant funds an annuity for the benefit of the plaintiff. This funding must not be constructively or actually received by the plaintiff, so it is important to make the decision about whether a structure will be used before money changes hands. If it goes to the attorney’s trust account, the option to structure is off the table. The annuity will payout in increments for a set number of years or maybe guaranteed until the client dies. The increments can pay monthly, quarterly, semi-annually, or annually.
There are several benefits to utilizing a structured settlement. First, an annuity will ultimately get more money, over time, in the client’s pocket than they would get from a lump sum. Second, structured settlements are protected from creditors, and generally safe in the event of divorce or bankruptcy. Third, the client will not have the opportunity to spend all of their money quickly because they will never have it all at once.
One risk with structures, however, is that if the structure pays to the client directly, they can assign it to a factoring company for quick cash (selling your structured settlement to a company like J.G. Wentworth). In many cases, they are offered pennies on the dollar, but it may seem like a good deal to the desperate or uneducated client. To protect against this, the structure can be set up to pay to an irrevocable settlement trust for the client’s benefit. Factoring is still an option, but only if the trustee consents. Any trustee worth their salt would only consent to factoring in an extremely limited set of circumstances when the loss of the future payments is still in the best interest of the client.
For example, if the client’s entire net was structured, resulting in modest monthly payments, they would have to save their money (or take out a loan) to make a major purchase such as a house or a car. In the right circumstances, a trustee might consent to factoring, but it would be a tough battle given how much the client would have to give up. To avoid this situation in the first place, it is recommended that the trust receive a partial lump sum to “seed” the trust and structure the rest.
That set-up provides the best of both worlds: there is liquidity in the event the client has an immediate need to make a major purchase, but the client still gets all the benefits of structuring. It also is cost-efficient and tax-advantaged. It is cost-efficient since trustee fees are less overall with less cash going into the trust and future periodic payments flowing in over time. It is tax-advantaged because the structured settlement is a tax-free investment while monies invested in the trust are taxable so with less cash in the trust, taxes are overall lower.
See the original article here: https://jasondlazarusesq.legalexaminer.com/legal/how-structured-settlements-and-trusts-work-together-to-protect-your-clients-recovery-long-after-the-settlement-ends/
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TriMark Legal Funding was founded in 2003 and is one of America's top-rated lawsuit funding companies. TriMark provides pre-settlement funding and post-settlement funding on pending and settled lawsuits to injured plaintiffs throughout the United States. We offer funding on hundreds of different types of legal claims including personal injury loans, employment litigation funding, work injury accident loans, workers compensation loans, mass tort litigation funding, and multidistrict litigation funding.
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