Using Trusts to Settle Lawsuits

Special considerations come into play when a plaintiff poised to recover money is a child or an individual with a disability. In the context of settling a lawsuit or receiving judgment proceeds, cash cannot simply be delivered to such a person because of the plaintiff\u27s legal incapacity. Instead, recovered funds must be delivered to a third party for the plaintiff\u27s benefit. This third party can be a trustee, a custodian, or a conservator.In most circumstances, the use of a trust offers greater flexibility and better protections of the plaintiff/client\u27s interests. Not uncommonly, however, attorneys select a conservator or simply a minor\u27s account to hold settlement funds in the interests of perceived cost savings or out of a desire to avoid delays. These options are viewed as less expensive for the client, easier to self-administer, and a way to avoid the need to consult with a trust attorney.On closer examination, however, the reasons cited against the use of a trust disappear in nearly every situation. A trust can be more efficient in terms of both costs and the time required for initial implementation. When properly structured, trusts also can offer income tax advantages.The discussion in this article applies most commonly in connection with the settlement of a personal injury claim involving an injured child or individual with disabilities. Application also could be made, however, to other tort plaintiffs, wrongful death beneficiaries, or minors or disabled persons who receive unanticipated inheritances. The discussion in many cases could apply with equal weight to the ways to manage funds from a verdict or judgment