5 Key Benefits of a Settlement Protection Trust for Personal Injury Claimants

5 Key Benefits of a Settlement Protection Trust for Personal Injury Claimants

July 8, 2023 Off By Glespynorson

A Settlement Protection Trust is a legal arrangement that places part of a plaintiff’s settlement into a protected account. The trust is administered by a fiduciary and can be fed directly by cash settlements or payments from structured settlement annuities.

Clients often use these arrangements for money management enhancements, protection from foolish spending and other concerns that arise when receiving a large sum of settlement funds.

Asset Protection

In addition to the financial flexibility of the Settlement Protection Trust, it can help protect a claimant’s funds from wasteful dissipation and from family members who may try to take advantage. It can also protect assets from being sold to structured settlement discounters.

A trustee can manage the distribution of funds to accommodate changes in the plaintiff’s tax profile. For example, if a plaintiff’s medical expenses increase, taxable income can be used to offset deductions.

Personal injury lawyers and guardians ad items need to consider the possibility that a plaintiff might need public benefits in the future. If so, consideration should be given to establishing an SPT with a special needs subtraction. This provides a lot of the flexibility of an SPT but allows the trustee to move assets between the two trusts when necessary.

Tax Savings

A settlement protection trust (SPT) offers a high degree of liquidity compared to other structured settlements. Funding for an SPT is a simple deposit that does not require defendant/insurer involvement. The trust can be funded with cash or through payments from an annuity structure. Distributions can be designed for taxable or tax-free income.

An SPT can be used for various purposes and needs, including care management arrangements, helping with large purchases like home/car modifications or adaptive equipment, navigating government benefit programs and addressing long-term financial goals.

If a client still needs to receive public benefits and may need them, an SPT with a special needs subtraction can be an excellent choice. This arrangement allows for the flexibility of an SPT with the added benefit of a special needs trust which preserves Medicaid and SSI eligibility.


Most personal injury cases involve a large sum of money, and the injured party is concerned about protecting themselves from creditor claims, judgments or rapid dissipation. A revocable trust is ideal in these situations.

Special needs trusts are a great solution for disabled plaintiffs who receive a settlement but come with their own set of restrictions. In some situations, a Medicare set-aside is required to preserve future eligibility for medical coverage under Medicare.

Pursuing an injury claim and settlement agreements - Cartwright King

Structured settlements are often used to preserve public benefits, but they must be carefully structured to avoid violating the laws that govern them. Faulty construction can lead to the constructive receipt of funds by the injured party, which could result in disqualification from lifelong needs-based public programs. A settlement preservation trust with a structured settlement annuity is a safer alternative.

Care Management

Many personal injury clients require substantial assistance with day-to-day activities, and the settlement may be used to pay for those services. Those expenses may increase or decrease over time, and the SPT provides financial flexibility with controlled liquidity.

SPTs allow for care management arrangements, and a trustee can help an injured person avoid waste by ensuring that funds are not squandered or coveted by family members and friends. Trustees can also help with big purchase decisions, such as purchasing a vehicle or home, and they can assist with navigating government benefit programs.

Trust Administration

A settlement preservation trust is a great choice for plaintiffs with unpredictable future needs, subject to change or event contingent. These might include Medicare set-asides (MSAs).

In a typical situation where a client receives financial compensation from the defendant or insurer, an SPT will be set up. A structured settlement annuity will be deposited into the SPT, allowing for various payment modes, including adjustable periodic payments, health and tax payments and emergency needs payments.

The trustees will agree on a budget to ensure that the funds last a lifetime, and reserve amounts will be kept in case of unexpected expenses. Trustees are held to fiduciary standards and will avoid self-dealing or conflicts of interest. They can also hire care management professionals to arrange a comprehensive care plan modified over time.