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The Dean Law Firm Blog

Tuesday, April 9, 2019

What is Settlement Planning?

By Julia Dean

Personal injury lawsuits can include years of litigation, so when a plaintiff receives a settlement in a personal injury case, he or she might believe that everything is resolved. However, for minors, individuals with disabilities, incapacitated adults, and individuals receiving public benefits, extra planning is required to receive the full benefits of the settlement. Without careful planning, individuals who receive a large settlement may have difficulty managing the funds, may lose eligibility for vital government aid, or may risk losing the funds to divorce and debtors.

When a plaintiff is an individual under the age of eighteen years old, or is an incapacitated person, he or she is not considered to have legal capacity to manage the funds. These funds are usually placed in a trust account held by the Court, and a parent or guardian must petition the Court to use trust funds to provide for the child or incapacitated adult. For these individuals, the parent or guardian may petition the Court to withdraw the full amount and place it in a privately-managed trust for the sole benefit of the child or incapacitated adult.   

For Medicaid recipients or individuals with disabilities, settlement funds can be counted as a resource for the individual and disqualify that individual from necessary government aid, even if he or she cannot physically access settlement funds. For these individuals, transferring this money to an irrevocable Special Needs Trust managed by an Independent or Corporate Trustee may be the best option.

Married plaintiffs also face the additional issue of characterizing settlement funds. Because Texas is a community property state, different portions of the settlement are characterized as that individual’s “separate property” or “community property”. For example, funds for injuries, medical bills, or pain and suffering are considered that individual’s “separate property”; whereas, funds for lost wages are considered “community property”. If separate property is not kept in a separate account with the interest and dividends going into a separate “sweep” account, then that individual risks the assets becoming commingled and converting to community property. This commingling allows for the original separate property assets to be partitioned during divorce or leaves them at risk for the spouse’s joint debts.  

To stretch out the benefits of a settlement and avoid pitfalls, a plaintiff must create a plan for his or her settlement funds. Planning often requires establishing a variety of complex planning mechanisms, such as special needs trusts, structured settlement annuities, separate property accounts, and guardianships. Because each case is unique, it is crucial to tailor a settlement plan to an individual’s circumstances. Individuals who are scheduled to receive a settlement, inheritance, or judgment should engage the services of an attorney with experience in settlement planning.

Julia Dean is the managing attorney at The Dean Law Firm, PLLC, a boutique law firm practicing in estate planning, probate, guardianships, elder law, and civil appeals. Mrs. Dean has been recognized as a Top Attorney and Leading Advisor by Acquisition International, Forbes, Newsweek, H Texas, Houstonia, and the Sugar Land Sun, and has earned Martindale-Hubbell’s Client Distinction Award. The Dean Law Firm is committed to bringing you peace of mind by providing thoughtful estate planning for your family.



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