Can I use a personal injury award to create a trust?
Being a victim of an accident makes a person aware that life sometimes throws hard curveballs, rather than softballs. Once securing compensation, a person’s mind logically turns to preserving the money. Clients who have received personal injury awards which are also concerned with asset protection will often ask, “Can I use a personal injury award to create a trust?”
Types of Trusts for Holding Personal Injury Awards
There are many different types of trusts, as a skilled estate planning lawyer can explain. Each is designed to address a particular concern. The right trust for you will depend on what issues you wish to address.
Revocable Trusts, To hold Personal Injury Awards.
A Revocable Trust is perfect if your concern is needing assistance with your money, but you are not concerned about creditors or lawsuits. For example, if you wanted your child to help you manage your investments and help pay bills, but don’t want to subject your assets to your child’s creditors or potential divorce issues, a Revocable Trust is a perfect document. In short, the Revocable Trust owns your accounts for your benefit, and the Trustees are free to act for your benefit. You can change the Revocable Trust at any time, and it replaces your Will at your death.
Irrevocable Trusts for Others, Giving Your Personal Injury Award Away.
An Irrevocable Trust for other people is the safest way to protect your award, but it also means that you are giving away direct access and control. For example, you could form an Irrevocable Trust for your spouse or your children and transfer a portion of your award into the trust. If properly drafted any future creditor you may acquire will have no claim to those transferred assets. While your spouse and children can share these assets with you in the future, you cannot require them to return the money. While this is a very safe option, you may find losing control and ownership difficult.
Self-Settled Irrevocable Trusts, Your Personal Injury Award Held for You.
While an Irrevocable Trust for other people is settled law in all states, only a few allow Self-Settled Trusts. A Self-Settled Irrevocable Trust is an Irrevocable Trust that you form for your benefit. You place some or all of your Personal Injury Award into the trust, and the Trustee holds it for your benefit. You are both the “settlor” and the beneficiary. Understandably, if these trusts were easy to form and cheap to manage, everyone would put their money into one avoiding all creditors. Some states, such as Delaware and Alaska have statutes explicitly creating these trusts. To use those laws you have to hire an Alaska or Delaware Trust company.
The costs involved in setting up and maintaining a Self-Settled Trust require a substantial amount of money. I would be happy to discuss the pros and cons of a Self-Settled Trust.
Can I Use a Personal Injury Award to Create a Trust?
Yes! Depending on your needs and requirements, a trust can be set up to help.
In conclusion, a trust can be crafted to address your needs and concerns.
Thanks to our friends and contributors from Klenk Law for their insight into trusts and estate planning practice.