Most people understand that when you are injured in an accident of some kind, you may have legal options for recovering all or part of your costs from someone else. For example, if someone hits you with their car while driving recklessly, there is a good chance that you’ll get a settlement from them — or more typically from their insurance company, or that you’ll go to court and win an award against them for your damages. However, what exactly that award or settlement looks like in practice is less well understood. Winning an award in court is only part of the process of actually getting reimbursed for your injuries; you still have to collect the money you’re owed. I’ve written before about some of the reasons that some good cases just can’t be “won” in a practical sense because there simply isn’t any option for ultimately collection on your award. In this article I want to talk about some of the reasons why you might not want to take a big check from your defendant, and what you can do instead under certain circumstances.
Annuities
Put simply an annuity is merely a series of fixed payments stretching into the future. Sometimes defendants who are held liable by the court, or who voluntarily settle a case, just don’t have enough resources to pay you outright. In these situations, a defendant might offer to make payments to you, like payments on a house, until their obligation is “paid off”. There are lots of ways these kinds of structures can be set up, but essentially you get your money in regular chunks; not all at once.
Trusts
In some situations, your defendant might have enough cash on hand to pay your claim outright, such as an insurance company, but it might be in your best interest to take payments on the award rather than a large lump sum. Sometimes this is because accepting a large one-time payment might have adverse tax consequences. In other circumstances, a plaintiff might not be competent to handle a large lump payment; such as for very young children or disabled victims. In these cases, a trust can be created to handle the assets while still ensuring that the money, or the benefits of the trust, ultimately goes to the intended plaintiff; usually in the form of periodic payments. There are a number of different types of trusts, some of which have wide room to design the specifics to match a given situation, others of which are closely regulated by state or Federal law.
In some situations, the successful plaintiff might not want, or be able to, handle a single large payment. Children, for example, probably don’t have the experience or resources necessary to manage several hundred thousand dollars in settlement money. Even for adults, some people just aren’t great at managing their money and would prefer a stress free regular payment instead of the hassle of large asset management choices. In these circumstances, trusts can be created, with professional asset managers, to hold the settlement for the benefit of the injured plaintiff. These trusts are usually managed with an eye towards maximizing their value and the money is often invested at a profit; the trust ultimately becomes worth more than the original settlement. Payment of benefits can be structured in a number of different ways to meet a wide variety of objectives. For example, payments could be made to a child’s guardian until the child reaches 18 (or 21 or 35) at which time the balance of the trust might be paid out in full. Many other options exist.
In some cases, an injured accident victim was previously eligible for public services such as Medicaid or Medicare and doesn’t want to lose that eligibility as a result of coming into a large sum of money. There are a number of legitimate reasons for this concern such as the long-term sustainability of care. Whatever the reason, the law provides for trusts to be created for just this situation. Though such trusts are highly regulated, and the benefits can be paid out only under certain circumstances; the assets of such trusts will not be counted against a person with regard to public benefits eligibility. The one major requirement is that the beneficiary be disabled.
A variation of the special needs trusts, Medicare Set Asides are designed to help keep an individual eligible for Medicare under certain circumstances. These trusts are complex and governed by an interlocking series of both Federal and State laws, but they are sometimes the best way to preserve settlement resources for certain classes of victims.
You need a lawyer
Trusts are not to be taken lightly. They involve complex financial decisions informed by even more complex legal questions. Done improperly, trusts have the potential to dilute assets dramatically. If you think that a trust of one kind or another might benefit your situation, you absolutely should speak to a qualified attorney about your case before making any final decisions. There are pros and cons to each type of settlement, from a lump-sum payment to a trust arrangement, and you’ll want to make sure that you’re fully informed about all of your options.