What is a Trust Settlement?

A trust is a legal instrument that is created by the owner of real, tangible or intangible property that allows an individual or organization to manage and control the property for the express benefit of another individual, a group of people or an organization. There are a number of different trusts that can be created to handle various financial arrangements. A trust settlement generally is used in connection with a personal injury settlement and is set up to control how the proceeds from that type of settlement are spent.

When a plaintiff wins a monetary award in a personal injury case or otherwise settles out of court, he or she will receive that money in one of two ways. He or she either will get a lump sum up front or will receive a structured settlement in which he or she will be paid a portion of the award at specified intervals over a period of time. If there is a restriction or concern about how the settlement money will be used, it can be placed into a trust settlement.

This type of trust instrument restricts how and when the property placed in the trust can be used. For example, if a female plaintiff is awarded money that is to be used only for medical expenses, then she will be able to access it only to pay for the medical care that she receives. She would not be able to use any of that money to pay her mortgage or for other non-medical purposes. Likewise, a trust settlement can be set up to restrict how much money is given at any one time. For example, a plaintiff might be awarded $100,000 US Dollars in damages but could be restricted through the trust to receive only $1,000 USD per month until the entire settlement amount has been paid out.

After a trust settlement has been created, it is irrevocable and cannot be changed. Therefore, it is advisable that a knowledgeable trust attorney be used to handle all aspects of creating the trust settlement. Additionally, there are several tax benefits and liabilities associated with this type of trust, and a tax professional can help ensure that tax laws are being followed and any tax benefits are maximized.