When people receive a settlement for a personal injury claim, it is often in the form of a structured settlement. A structured settlement often means that the defendant’s insurance carrier has purchase an annuity calculated to pay certain sums at regularly scheduled intervals in the future. Insurance carriers representing defendants in a personal injury case often favor structured settlements because they can settle the case for less money up front than the actual value of the case. Insurance companies, however, often are unwilling to disclose the amount that will be paid to purchase the annuity. This can make it difficult for the plaintiff’s lawyer to evaluate the merits of the settlement offer.
Structured settlements are intended to provide a secure and fixed stream of recurring payments to a claimant over a long period of time. They avoid dissipation of lump sums by injured parties who may otherwise be left with no or few means of support. Strong public policy in favor of deterring claimants from squandering their settlements or awards has led to favorable tax rules for structured settlements.
Unfortunately, structured settlements can cause a serious problem for the plaintiff. For instance, if he or she is receiving Supplemental Security Income (SSI) or Medicaid, the regular monthly payments might result in loss of those important benefits. This can be particularly problematic if the settlement amount is insufficient to take care of the plaintiff—as it might well be if the defendant’s insurance coverage was inadequate, or the plaintiff was partially at fault for the injury.
Payments from a structured settlement can be made to a special needs trust to help protect benefits. A special needs trust enables the individual with disabilities to retain existing means-tested public benefits such as SSI and Medicaid or to financially qualify for such benefits while having funds available to supplement the individual’s needs that are not covered by government programs. The trust funds can be used for a wide variety of purposes, such as additional support services at home, vacations, companions, vehicles and a residence. If a special needs trust is created, the amount in the trust paid back to Medicaid will be deductible for federal estate tax purposes as a claim against the estate.
A structured settlement may be advantageous to the plaintiff because of the availability of large sums of money to the trustee of a special needs trust. Structured settlement payments often provide a fixed stream of income, and therefore, they usually will not be subject to unfavorable economic conditions such as recessions or inflation.
One of the disadvantages of structured settlements, however, is the inability of the injured party to change the amount received or the schedule of payments. When circumstances change and the injured party needs a lump sum of money (to purchase a house, for example), the injured party cannot simply give the annuity back to the life insurance company for a lump sum.
Similarly, the injured party is unable to unilaterally change the recipient of the structured settlement. There often is a need to make such a change when it is subsequently determined that the payments should be deposited into a special needs trust so that the injured person can receive public benefits.
Where there is a special needs trust in place, the trustee should ordinarily be named as the recipient of the structured settlement payments. If the plaintiff is named as the recipient, the payments can disqualify the disabled person from receiving means-tested benefits such as SSI and Medicaid even though payments are subsequently directed to the trust.
If you or a loved one has recently received a personal injury settlement, the attorneys at Alperin Law would be happy to meet with you to help preserve your settlement and make sure it does not interfere with any government benefits you a are receiving now or may receive in the future.