Settlements, Trusts, and Trust

Faithful readers and clients who have known me for any length of time have had the pleasure of reading my musings on the extraordinary value and benefit provided by structured settlements of cours,e but also of the value and benefit provided by certain kinds of trusts. I have mostly written about Special Needs Trusts (SNTs), Medicare Set Aside Trusts (MSAs) and Settlement Preservation Trusts (SPTs). Each of these types of trusts serves a specific purpose providing significant benefits to injured plaintiffs and their families. Used properly, the right trust can immensely improve the value of a settlement.

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Special needs trusts are used to preserve government benefits for claimants who might otherwise be declared ineligible by the simple act of receiving their personal injury settlement. Since some vital programs – principally Medicaid - are “needs-based” as to the claimant’s assets and income, you must be careful how you distribute settlement proceeds. You can’t simply hand them a check or even a guaranteed monthly income because doing so might result in the sudden termination of their benefits.[1]?

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Medicare Set Aside trusts are designed to preserve and protect the claimant’s Medicare eligibility and Medicare itself. MSAs were made necessary through the enactment of the Medicare “Secondary Payer Provision.”? All past care already provided by Medicare must be repaid at settlement and, to the extent any future care related to the accident is anticipated which would otherwise be covered by Medicare, the parties must “set aside” a sum to cover it. For simplicity’s sake, I am leaving out the argument about in which cases this must be done and how; just know that this is why Medicare cares.[2]

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These two programs care about the distribution of settlement proceeds because they do not want private parties found liable for injuries to scrape the costs of future care of the claimant off onto taxpayers. Unlike SNTs and MSAs, Settlement Preservation Trusts are not specifically described or authorized by Federal law. This means that SPTs are completely different vehicles and are used for different reasons. Because SPTs are not used to protect SSI and Medicaid benefits, it also means they are not required to comply with various rigid Federal requirements.

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SPTs are designed to preserve the injured claimant’s settlement proceeds, through pre-determined distribution schedules and conditions. A pre-determined distribution schedule would be an agreed upon schedule of distributions that would be made by the SPT. This would be similar to a structured settlement payout where a claimant chooses from among several proposed payment streams, all of which vary according to how much will be paid and for how long it will be paid. However, unlike structured settlements, the distribution schedules from SPTs, while much more flexible than a structure, are not guaranteed and are fully taxable.

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While these trusts can provide great benefits to their beneficiaries, one must be careful in establishing them: they are by definition trusts, and they have titles with words like “preservation” in their title, but can you trust them to preserve your settlement?? After all, it is and has been abundantly clear that the only options approaching “risk-free” are U.S. Treasury bonds and Structured Settlements guaranteed by highly rated reserve life insurance companies. One must still exercise caution and perform “due diligence” when selecting a trustee for such a trust.

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Case in point: The Center for Special Needs Trust Administration, Inc. (The Center) is a 501(c)(3) non-profit corporation that administers SNTs and SPAs. From the time of its founding on December 8, 2000, it grew fast, becoming “one of the largest trust providers in the country.”3 Many injured claimants put their trust and settlement funds into The Center only to find its founder today accused of taking out roughly half of the $200 million held in trust through an unsanctioned loan. More than 1,500 individuals and families received letters from The Center in February 2024 informing them that their trust funds set up from damages awarded for medical malpractice or other accidents were either empty or severely depleted. Almost 900 trusts were left with balances of less than $500.FOOTNOTE

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Here the claimants and their families believed they were doing the right thing by putting the settlement proceeds that many literally bled for in the hands of respected qualified and honest people to manage. Little did they know they had entered a den of thieves. This begs the question of who can you trust? The jaded Jersey guy and structure professional in me is screaming “caution!”? A better route when setting up a settlement plan is to build in back-ups and guarantees to back up the guarantees.

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All the trusts I describe in this article can and should be funded at least in part with a tax-free GUARANTEED structured settlement. This means capture the value and security of a proven structured settlement, and direct its payments into the trust. A properly established traditional structured settlement has multiple layers of security, stemming from the integrity of the Best-rated annuity issuer and the statutory reserve requirements they must meet -and maintain- in order to do business.? Many fiduciaries take further comfort in the knowledge that individual states also maintain “guaranty funds” to deliver added security.

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Set up properly, even if you have the terrible misfortune of running afoul of what appears to be an outright thief, as the aforementioned 1,500 individuals and families did with The Center, their losses would be minimal because the vast majority of their settlement proceeds would actually be held in a safe, secure, and guaranteed structured settlement annuity.?

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Are you negotiating a settlement where future financial security is paramount? Would you like to see more information on the guarantees afforded by a structured settlement? Contact Frank C. Kilcoyne, CSSC at [email protected] or call 800-544-5533. I am here to help.

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1.????? Depending on jurisdiction, amounts as low as $2,000 can cause problems.

2.????? Rules established for Workers’ Compensation, almost certainly on their way for liability cases, but not yet in place.

3.????? centertrust.org

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