Car crashes, incidents and fatalities are an unfortunate reality in our increasingly hectic and fast paced world.
According to the CDC, about three million people in the US are injured every year in a car accident. Most states have laws in place to help protect people who are injured in a car crash through an avoidable fault of another driver. These personal injury cases can often result in large sums of money being paid out to the victim of the crash, either through an out of court settlement or through a court judgement. A sudden and large influx of cash can be overwhelming to the recipient, who is working through medical bills, lost wages, insurance claims and a litany of other financial issues that come along with these accidents. Unfortunately, in many cases this money can be mishandled without proper legal and financial planning. If you’re receiving structured or lump sum settlement money from a personal injury case, here are a few things you can do to ensure the money is used properly and kept safe for the long term.
Set Up a Will or Trust
A large increase in wealth due to a personal injury settlement increases the need for a proper legal plan to distribute your money and assets if you were to unexpectedly pass away. Even if you already have a will or estate plan, the new structured or lump sum settlement may not be written into this plan yet, and you will want to ensure that any remaining funds are distributed and used according to your wishes. There may also be outstanding medical or other bills that will need to be paid with this money, so naming a trustee or executor who is aware of these financial obligations is critical.
If you are married or have a minor child, a living trust can direct a trustee to use your accounts and property for the benefit of your spouse or child, while protecting those assets from loss by lawsuit, divorce, or other financial difficulties that your spouse or child may experience after you are gone. A trust can also protect property until children reach an age when they are better able to manage the money that they will eventually inherit. Unlike a will, which usually requires a lengthy and sometimes expensive probate proceeding, a properly established living trust can help your loved ones avoid the probate process at your death.
In some states, there are protections for personal injury settlement money against creditors. In these states, settlement money must be placed in a specific account or designated investment so that if a creditor makes a claim against the recipient of these funds, the proceeds are clearly delineated and protected from collections. If a state does not have these laws in place, it may be in your best interest to use other asset protection strategies, such as a Domestic Asset Protection Trust or other investments that are accessible to you, but not creditors.
Plan for Incapacity
A trust is not just a tool for how to distribute your assets after you pass away. It also allows a successor trustee to manage your accounts and property if you are not able to take care of them yourself. In addition to this successor trustee, it’s important o have a valid financial power of attorney. This is a legal document that allows you to appoint a trusted individual (referred to as “agent”) to handle financial matters on your behalf. Depending on the type of financial power of attorney you have, your agent can either act immediately or only if you become disabled and unable to handle your own affairs. Things you can allow your agent to do include accessing your accounts, dealing with insurance companies on your behalf, and even handling certain legal matters. Before naming this person, you should talk to a qualified estate planning attorney to make sure the legal document includes provisions that are relevant to you and your financial situation.
Finally, you should also make sure that you appoint a health care agent in an advance health care directive or medical power of attorney. These documents give your agent the authority to make important medical decisions or communicate your wishes regarding your medical care on your behalf if you cannot. This does not have to be the same person who you name as the financial power of attorney. In fact, it may be advisable to split these responsibilities between two different trusted individuals.
Davis Law Group Can Help
Personal injury settlements often involve significant amounts of money, and in fact it may be the largest amount of cash you ever receive at once. Planning is crucial to ensuring that these funds benefit you, your recovery and your loved ones. Our experienced estate planning attorneys can help you draft a plan that covers your unique situation and settlement. Contact us today to set up an in-person or virtual consultation.