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In many instances, a claim for personal injury may result in a settlement or award that cannot be paid directly to the injured party.  It may be that the injured party is a minor, or has significant disabilities that prevent him from being able to manage assets on his own.  One tool attorneys use to address this concern is to set up a trust to hold the proceeds from the personal injury lawsuit.  Most people think of trusts as tools for wealthy people when they are doing estate planning, but they have plenty of other uses.  It’s helpful to explain what a trust is in order to understand how it can be used in other situations, such as personal injury claims.

A trust is a relationship where someone is legally entrusted to control assets for the benefit of someone else.  There are actually three parties involved in every trust.  There is the grantor, or trustmaker.  As the name implies, that is someone who starts the trust relationship by giving an asset to someone to manage.  Then there is the trustee, the person who controls and manages the asset.  Finally, there is the beneficiary, the person who is intended to benefit from the asset.  

So, in the case of a personal injury lawsuit the grantor might be the defendant or his insurance company.  The trustee is someone both the grantor and the beneficiary agree would be a good fit to manage the trust.  For example, the trustees for a minor personal injury claimant may be her parents. And the beneficiary in the trust relationship is the injured party.  

While some trusts can be revocable trusts that can be revoked by the trustmaker, trusts for personal injury claimants are almost always irrevocable.  Because the assets of the trust don’t belong to the trustee or the beneficiary, the trust must have its own taxpayer identification number with the Internal Revenue Service.   It follows that the trust has to file its own tax return with the IRS if it has enough income.   Most Denver CO estate planning attorneys will guide their clients to a good CPA or other tax professional who can help with the tax returns for a trust.

It may be that the trust has to have special provisions to allow the beneficiary to continue to collect governmental benefits, such as Medicaid or Supplemental Social Security.  If the trust gives the trustee authority to pay for the injured party’s basic needs, the assets in the trust might be counted as assets of the beneficiary that make the injured party ineligible for those governmental programs.  So the trust only allows the trustee to pay for non-basic needs, such as specialized equipment, travel, or entertainment.  That type of trust is often called a special needs trust.   

Your personal injury attorney can help you work with a qualified estate planning attorney or other trust attorney who can help set up the best trust to manage your personal injury award.

Thanks to our friends and contributors from the Law Offices of Karen Brady, P.C. for their insight into setting up a trust after a personal injury award.


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Steve Harrelson
Steve Harrelson

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