Considering how you want to use your funds is important when you receive a settlement. That includes ensuring you can care for your financial musts like rent or mortgage, insurance and medical bills.
It’s essential to consult an attorney and a financial advisor who can assist you in achieving your objectives when creating a settlement plan. A Settlement Protection Trust is one tool you may use to do this.
Protect Your Assets
If you have been in a vehicle accident or suffered another type of injury resulting in a settlement, you may wonder how to maximize your compensation. The easiest method to accomplish this is to use a settlement protection trust.
A settlement protection trust, a special needs trust, is designed to protect your assets. They can help you get a home or vehicle, buy appropriate medical equipment or arrange for a case manager to oversee your case.
These trusts can also protect monies for people not receiving means-tested public benefits, such as SSI and Medicaid. They are often used for minors or incapacitated persons who cannot manage their finances.
Preserve Your Settlement
Ideally, settlement money will last the injured party’s lifetime. But many wounded parties must be more sophisticated in managing their money and are pressured by family, friends, or other people to spend the settlement.
A settlement protection trust can help ensure the funds are used wisely and not squandered. It can also protect the injured party from creditors or divorce claims.
Another advantage of a Settlement Preservation Trust is that the trustee can distribute without court approval. This allows for better money management of the settlement funds than is possible when they are deposited in an account with the court.
A settlement preservation trust can benefit clients not already receiving public benefits like Social Security, Medicaid or SNAP (food stamps). It is also useful for clients with minor children who receive support payments from the trust.
Maximize Your Taxes
The most effective way to maximize your taxes is to place your settlement proceeds in a trust. By doing so, you can safely invest the money in market-based investments and bonds while providing a variety of tax advantages that are only possible with a trust.
A typical settlement protection trust (SPT) can be revocable or irrevocable and can even be a grantor trust. This is a good choice if you want to protect your settlement and ensure that the monies last as long as possible.
In addition to protecting assets and maximizing your tax situation, an SPT is an ideal way to pay for medical expenses not covered by SSI or Medicaid. For example, distributions to third-party providers of goods and services such as home health aides or physical therapy can be made directly to these professionals rather than through your supplemental needs account. This can save you a great deal of time and money.
Invest in Your Future
Investing in your future is important in creating an efficient plan for your settlement funds. You can use your settlement to make an emergency fund, grow your savings for retirement, or invest in education.
Consider investing in annuities or guaranteed-income investments, depending on the size of your settlement. These assets provide a monthly income, usually tax-free and can be an excellent way to ensure your money lasts.
Another investment option is a special needs trust or pooled trust. These are often used for clients not receiving public benefits such as SSI or Medicaid. These trusts allow distributions to cover uncovered medical expenses and life-enhancing purchases not covered by these programs. They can also be a great asset protection device to use in conjunction with annuities. It is recommended that a professional trustee be utilized to manage these types of trusts. A professional trustee can help clients navigate the complicated laws, rules and regulations about these types of trusts.