A sudden influx of compensation from a personal injury claim can overwhelm some people. They may be young or old or need experience handling large amounts of money.
Setting up a personal injury trust for these people can be essential. This can help them to manage their settlement funds and protect their financial and personal interests over time.
Separation of Assets
Personal injury settlements are often used to pay for expenses not directly delivered to the injured party, such as medical treatment or specialized equipment. In these cases, the attorney may recommend that the award be placed into a trust and paid to the trustee.
This can help protect the money from being divided in a divorce. However, if the settlement money is not adequately separated from other assets, it could be considered marital property and subject to equitable distribution.
The law varies from state to state, and a personal injury settlement can be either marital or separate property, depending on a few factors. One of the most important is when it was acquired.
If you set up a personal injury settlement trust, you can avoid taxes that would otherwise come from your compensation award. This can save you money and give you peace of mind that your financial future is secured.
Ideally, you should set up your trust before you receive the compensation payment. However, this is only sometimes possible.
When you receive the first payment from a personal injury claim, it is not counted in your means-tested benefits calculations for 52 weeks, known as a ‘grace period.’
Therefore, if the compensation is likely to be exhausted within this time, it makes more sense not to set up a personal injury trust. It may be worthwhile setting up a trust if you are concerned about the taxability of your future compensation payments, but this depends on your situation and should be discussed with your solicitor before you make any decisions.
Trust administration costs are among the most common and challenging expenses for setting up a personal injury settlement trust. The prices depend on the size and complexity of the estate, the number of beneficiaries, and other factors.
Trust administration requires extensive paperwork and the attention of an experienced attorney who specializes in estate law. It also takes great patience and knowledge to handle complicated questions and requests from beneficiaries or creditors.
A trustee also has fiduciary duties to uphold the trust and work in the best interests of the beneficiaries. This involves preparing an inventory of the assets, making appropriate filings after the settlor’s death, paying off financial obligations, and distributing the assets to the beneficiaries.
Setting up a personal injury trust makes sense if you have a substantial settlement from a personal injury injury. This will protect your assets and ensure that they are used wisely.
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