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Beware The Pitfalls of Over-Structuring a Settlement

Plaintiff’s receiving a settlement want to have it safely and conservatively invested.  As attorneys, we share their concern about dissipation of the settlement perhaps for different reasons.   To safeguard the client (sometimes from their own fiscal irresponsibility) structured settlements are an option.  The use of a structured settlement can be a double-edge sword as explained below.

The Tale:

A case was settled for a woman in her mid-thirties injured as a result of a medical malpractice.  Due to the injuries and associated complications the plaintiff has to live permanently in a skilled nursing facility.  The young woman’s care is paid for by Medicaid.  The plaintiff is married and has a young child. The spouse is the court appointed guardian for the plaintiff.

When the hospital settled, it was agreed that the full amount of the net proceeds, approximately $850,000.00, would fund a structured settlement.  In order to preserve the young woman’s eligibility for government benefits a special needs trust is being prepared.  The structure will pay directly into the special needs trust.

We arranged for the guardian to interview three potential corporate co-trustees each with significant experience administering special needs trusts.  Two of the three candidates declined serving as a co-trustee solely because there was no cash funding the special needs trust. The concerns of the corporate trustees were:

  1. Investing: The corporate trustee will be unable to invest until there is adequate cash built up from the monthly structure payments.  This could limit the future growth of the special needs trust and its ability to fulfill the needs of the injured woman.
  2. Availability: Depending on the needs of the injured woman, there may not be sufficient cash to purchase necessary services and products right away.  Such a delay may frustrate the spouse and family and will not contribute to improving the qualify of life for the injured woman.
  3. Administrative Expense: A trustee of a special needs trust still has the same responsibilities and liabilities regardless of the assets of a special needs trust.  The administrative expense for a corporate trustee will not be reduced simply because there is little or no cash.

The Tip:

Before agreeing to the form of the settlement, consult with an elder law attorney and a care manager to determine an expenditure plan for the first year. The expenditure plan will help you determine the minimum amount of cash to fund the special needs trust.  Cash, structured settlements and special needs trusts can co-exist and compliment each other with the right balance.

“Proper Planning May Create Peace of Mind”

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