What is a Settlement Preservation Trust?

Settlement Preservation trusts (SPTs) are popular alternatives to annuities that allow periodic payments to be made. These trusts can provide the following benefits:

  • The protection of spendthrifts
  • Managing liquid assets
  • Availability and flexibility

Under the supervision and guidance of the Master GAL and/or Special Master, the Settlement Planning Administrator shall take reasonable steps to ensure that the Settlement Preservation Trust and Special Needs Trust are funded and documented efficiently and timely.

Following the settlement of a personal injury case, it is likely that a plaintiff will experience a significant change in the position of his or her financial resources at some point in the future. When such a change occurs, the SPT will provide flexibility in finances and control over liquidity. SPT is the best option for plaintiffs with uncertain, unpredictable, or event-dependent future needs.

The Settlement Preservation Trust (SPT) is not specifically described or authorized by Federal law, as is the case with Special Needs Trusts (SNTs) and Pooled Trusts (PTs).  SPTs are completely different from SNTs and PTs except that SNTs are self-funded and PTs are funded by companies. So, the SPT is a completely different vehicle and is designed for a completely different purpose.  The fact that SPTs aren’t used to protect SSI or Medicaid benefits also means that they are not subject to a set of rigid requirements imposed by the Federal government. SPTs are able to hold considerable protection and management potential due to the fact that they are not subject to the rigid federal requirements imposed on SSI and Medicaid.  In some cases, SPTs can be beneficial in both protecting against exploitation and spending habits while at the same time providing liquidity and flexibility, as we shall see below. Since state laws are largely in charge, SPTs have a high degree of customization, and when positioned correctly with expectations in mind, they can cater to an extremely wide range of conditions and needs.

Other Benefits And Features Of SPTs

  • The funds cannot be sold to settlement discounters, meaning that the funds will be protected.
  • If you have an SPT, you can still qualify for Supplemental Security Income (SSI) and Medicaid.
  • As the interest rate rises, SPT holders will enjoy the benefits of an increased income.
  • If unemployment or another added need occurs, periodic payments can increase.
  • An SPT can be used together with annuities to create a more balanced strategy.
  • An SPT’s annual fees are at least half as low as those of a trust established in traditional ways.
  • For the preparation of the SPT document itself, there is no charge.
  • It is not necessary for the defendant to approve or be involved in setting up an SPT.
  • Other estate tax settlement vehicles often have liquidity issues associated with them that are not present with SPTs.
  • Up to $50,000 is insured on every account with SPT.

In most cases, SPTs are funded through a simple deposit, without any involvement of the defendant or insurer. Depending on the structure of the settlement, it can come directly from the plaintiff (via a cash settlement), or it can come from payments that are made through the settlement annuity. For instance, your distributions can be adjusted periodically based on your health and tax matters, emergency needs, or any other payment mode that you desire, with the exception of life insurance. As part of the injured party’s protection, the SPT provides for a limited period of personal discretion. Payments can be made on a taxable or tax-free basis.

An important part of the administration of the SPT is to keep the best interests of the injured party in mind. Beneficiaries are able to benefit from lower initial deposits (generally $30k) and lower ongoing fees than one might expect from a company with plenty of experience.