While it sounds complex, it can serve an essential purpose. Learn about the goals of a Settlement Preservation Trust, how to modify it, and the limitations of the court’s power. This article will give you the information you need to make the right decision.
Table of Contents
Exculpation of trustee
The Delaware Supreme Court recently ruled in a case involving the trustee of a settlement preservation trust. In that case, the trustee had failed to make sure required disclosures in the trust. Specifically, the trustee could not disclose that he received death benefits, pension proceeds, and profits from a profit-sharing plan. While there are no clear definitions for these terms, the statutes governing trusts are confusing and can result in an adverse tax result.
For a trustee to be exempt, they must have received the proper training. Specifically, the trustee must have been familiar with the nuances of trust administration. The trustee must have been able to protect it and avoid pitfalls. A Settlement Preservation trust may have a beneficiary with little or no financial experience, making the trustee prone to errors.
Purposes of a Settlement Preservation Trust
Settlement preservation trusts allow an injured plaintiff to access the settlement funds when needed. This allows the plaintiff to continue receiving Medicaid and Supplemental Security Income while protecting the remaining portion of the settlement from settlement discounters. In addition, the trust can be set up to receive periodic payments based on need and eliminate estate tax liquidity concerns.
The trust can be funded by a single deposit from any source, such as a cash settlement deposit made directly by the plaintiff, or by continuous payments from an annuity structure. The fund can be distributed in the form of customizable periodic medical and tax payments, or just for emergencies as taxable or tax-free dividends. A Settlement Preservation Trust protects a claimant’s settlement for future generations. These trusts often specify a termination date. Typically, administered by an individual or corporate trustee. In some jurisdictions, there is a Medical Custodial Account (MCA) to collect settlement funds. The money in the custodial medical account can be used for medical expenses.
Modification or Termination of a Settlement Preservation Trust by Consent
A trust may be modified by the beneficiaries, the court, or both. For example, a change in circumstances may make it impossible for the settlor to respond appropriately to current events. A court may approve a modification if the change is consistent with the settlor’s probable intent, and a change that will benefit the beneficiaries will be more likely to be approved by a judge. However, if a change is not in the best interests of beneficiaries, it may be approved by the court.
Before modifying or terminating a settlement preservation trust by consent, beneficiaries should consult an attorney. The attorney will advise them on any possible obstacles to modification or termination and any pleading requirements necessary to obtain court approval. An attorney can also assist beneficiaries in determining how best to protect the interests of their heirs and beneficiaries. Modifying and terminating a settlement preservation trust by consent may also change the beneficiary’s tax liabilities.
