Settlement Preservation Trusts

A settlement preservation trust (SPT) is an alternative periodic payment funding device that can be used alone or in combination with an annuity. It can provide:

  • Spendthrift protection
  • Liquidity
  • Flexibility

It is possible that a plaintiff will experience a major change in his/her financial position at some point following the settlement of his/her personal injury claim. The SPT provides financial flexibility and controlled liquidity when such a change occurs. The SPT best serves plaintiffs who have future needs that are uncertain, unpredictable, subject to adjustment and/or event contingent.

Some other features and benefits of SPTs:

  • Payments cannot be sold to settlement discounters, meaning more protection of the funds.
  • It is possible to remain eligible for Medicaid and Supplemental Security Income (SSI) even with an SPT.
  • As interest rates rise, the holder of the SPT enjoys added income.
  • Periodic payments can increase in times of unemployment or other added need.
  • An SPT can be combined with annuities for a more balanced structure.
  • Annual fees for an SPT are at least 50% less than for a traditional trust.
  • There is no charge for drafting the SPT document itself.
  • No approval or involvement by the defendant is needed to set up an SPT.
  • SPTs eliminate estate tax liquidity issues that arise with other settlement vehicles.
  • Every SPT account is insured up to $50,000.

Funding for an SPT is a simple deposit and does not require any defendant/insurer involvement. It can come from any source, including directly from the plaintiff (via cash settlement), or it can be funded by payments from an annuity structure. Distributions can take the form of adjustable periodic payments for health and tax needs, emergency needs and virtually any payment mode except life contingency. Limited personal discretion is a spendthrift feature of the SPT to protect the injured party. Payments can be designed for taxable or tax-free distributions.

The administration of the SPT is set up with the injured party in mind. Beneficiaries enjoy lower minimum deposits (typically $30,000) and lower ongoing fees than one might expect from a trust company.

Other Common Types of Trusts:

  • Special Needs Trusts/Supplemental Needs Trusts
  • Pooled Income Trusts/Community Trusts
  • Medicare Set-Asides
  • Qualified Settlement Funds