A trust is a legal instrument used to manage and control property for the benefit of another person or organization. A trust agreement can be used to control how the proceeds of a personal injury settlement are spent, limiting the use of the money. Once created, a trust is irrevocable and requires an experienced attorney and tax professional to handle.
A trust is a legal instrument created by the owner of real, tangible or intangible property that allows an individual or an organization to manage and control the property for the express benefit of another individual, a group of people or an organization. There are several trusts that can be created to manage various financial arrangements. A trust agreement is typically used in connection with a personal injury settlement and is set up to control how the proceeds of that type of settlement are spent.
When a plaintiff wins prize money in a personal injury case or otherwise settles out of court, they will receive that money in one of two ways. He or she will receive a lump sum upfront or receive a structured settlement in which she will receive a portion of the premium at specified intervals over a period of time. If there is a restriction or concern about how the transaction money will be used, it can be placed in a trust transaction.
This type of trust instrument limits how and when the property placed in the trust can be used. For example, if a female plaintiff receives money that is to be used only for medical expenses, she will only have access to it to pay for the medical care she receives. You wouldn’t be able to use any of that money to pay off your mortgage or for any other non-medical purposes. Similarly, a trust agreement can be set up to limit the amount of money that is given at any one time. For example, a plaintiff may receive a settlement of $100,000 USD, but you may be limited through the trust to receiving only $1,000 USD per month until the full settlement amount is paid.
Once a trust agreement is created, it is irrevocable and cannot be changed. Therefore, it is recommended that an experienced trust attorney be used to handle all aspects of setting up the trust arrangement. Additionally, there are several tax benefits and responsibilities associated with this type of trust, and a tax professional can help ensure that tax laws are followed and any tax benefits are maximized.
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