by John Darer CLU ChFC MSSC CeFT RSP CLTC
The Difference Between a Settlement Preservation Trust and a Special Needs Trust
What is a Special Needs Trust? What Is a Settlement Preservation Trust? Are they from the same genus, like Charles Darwin's finches? Apparently a Florida based settlement planning firm thinks so and states on the Internet that "a Settlement Preservation Trust is a type of Special Needs Trust". Is It?
Let's take a look at the answer.
A Special Needs Trust is primarily governed by federal law under 42 U.S.C. § 1396p (d) (4) and its primary purpose, in a settlement context, is to preserve the plaintiff's/ trust beneficiary's eligibility for Medicaid, SSI and other governmental programs
The special needs trust must be carefully drafted to comply with Medicaid and SSI rules in order to preserve the eligibility. A Special Needs Trust is designed to supplement rather than supplant government benefits.
A Settlement Preservation Trust, also known as a Settlement Planning Trust or Settlement Management Trust is an alternative less restrictive recovery management device that can be used on a stand-alone basis, or in combination with one or more structured settlement annuities.
A Settlement Preservation Trust can provide:
- Spendthrift protection
- An alternate means of generating periodic payments to a plaintiff
- Controlled liquidity
- If used in combination with a structured settlement, a receptacle to receive periodic payments from the structured settlement annuity for further recovery management and measured distribution if desired.
Examples of Use of a Settlement Preservation Trust
- A Settlement Preservation Trust can be drafted to anticipate that the beneficiary may need governmental benefits in the future.
- A Settlement Preservation Trust doesn't doesn't typically have a Medicaid payback provision.
- A Settlement Preservation Trust may be set up for a limited purpose like assuring funds invested ( or part of a structured settlement that makes a series of lump sum payments) intended for college will indeed be available for college for the children of a deceased plaintiff.