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Special Needs…Special Planning When the Court is Involved

I am receiving more and more calls asking about protecting a settlement for a plaintiff in a personal injury case that has a disability. The plaintiff has a catastrophic brain injury due to the negligence of the defendant and receives a $3 million award in damages. A structured settlement can be integrated with a special needs trust through a qualified settlement fund to protect the plaintiff’s dollars.

What is a Structured Settlement?

Prior to 1982, a person who was injured and initiated a lawsuit was compensated in a lump-sum for their injuries. The Federal government, then, subsequently allowed payments to be made over a period of time in smaller increments in a “Qualified Structured Settlement” under Internal Revenue Code 468(B) .   Previous studies have shown that some 30% of those who receive lump-sum payments as compensation for accident or injury spend the money within two months, and some 90% of the rest have spent the money within five years.

In the case of a disabled beneficiary, it may be advantageous to have a structured settlement rather than a lump sum payment.

There are several reasons why a structured settlement that has been properly put in place will protect the disabled beneficiary:

  • When a disabled beneficiary receives a settlement, the money received has to last for their lifetime (or at least as long as possible). An analysis has to be made to determine what are that beneficiary’s medical needs for their lifetime. For example, how many wheelchairs will they go through?  How many vehicles will they need? Also, when will their home need a new roof?
  • >A qualified settlement fund allows for immediate payment of settlement or judgment proceeds, while preserving all options for structuring the settlement (annuity, partial cash payment, etc.)
  • Protects the beneficiary against their spending all the money (a “spendthrift”) and becoming a ward of the state
  • Once established, a financial manager doesn’t need to be involved to allow continued proper management of the funds


  • If set up properly, the structured settlement provides guaranteed payments that are income tax free. [See Internal Revenue Code 104(a)(2) ]

When is the structured settlement integrated with the Special Needs Trust?

When the beneficiary is receiving government benefits, usually in the form of SSI and MediCal, A special needs trust should be the beneficiary of the proceeds of settlement. To ensure that those benefits aren’t jeopardized, the special needs trust is designed to preserve those government benefits while enhancing the quality of life of the disabled beneficiary.
If you are involved in a court settlement, prior to determining how to distribute those assets it’s important to consult with an Attorney who is an expert in this area. As your Personal Family Lawyer®, we have been helping disabled clients make appropriate decisions.


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