Settlement Preservation Trusts (SPTs) can be useful for receiving and managing settlements when a lawsuit claimant is unable to receive or manage the settlement funds. For example, SPTs are often used as a less restrictive alternative to guardianship when settling the claims of minor children. As plaintiff attorneys know, parents are only authorized to settle claims and receive settlements up to certain statutory amounts as the natural guardians of their minor children. If a settlement exceeds the statutory amount, a guardian ad litem (GAL) or legal guardian must be appointed by the Court to protect the child’s interests. Depending on the circumstances and needs of the child, the GAL can recommend that a SPT be used as a less restrictive measure to guardianship.
With minor guardianships, the guardianship will terminate when the child reaches the age of majority. This creates concern for many parents because it means that all of the settlement funds will be made available when the minor child turns 18. By contrast, SPTs are frequently established so that trust disbursements can extend beyond the child’s 18th birthday. The amount and timing of disbursements can also be specified in a disbursement schedule at the time the SPT is created and funded. The disbursement schedule is structured to meet the best interests of the child, and disbursements are often limited to certain expenses such as college tuition, books, and housing. In other words, trust disbursements can be tailored to the needs of the minor child based on the GAL’s recommendations to the court after consulting with the parents and investigating all the circumstances of the settlement.
SPTs can also be established so the funds are completely unavailable until the minor turns 18. This can be a beneficial planning technique when children are receiving certain types of Medicaid that are not appropriate for a Special Needs Trust. Making the funds unavailable in these circumstances serves the dual purpose of preserving Medicaid eligibility while also protecting the funds from wasteful disposition. While some of these same planning techniques can be achieved with a structured settlement, a SPT is not inflexible as is a structured settlement. In addition, a SPT offers more protection because it cannot be factored at a discounted rate. It is not unusual for recipients of structured settlements to sell their future payments at a later date, but this is not possible with a SPT.
If you are a plaintiffs’ attorney, call the attorneys at Staunton & Faglie, PL for more information on how a SPT can be created to meet the specific needs and goals of your clients.