TRUSTS/STRUCTURED SETTLEMENTS

[admin]

Can someone explain the two and their opinion of each. Which is better? What's the difference? Would appreciate any information.

[angryparent]

I'll keep it very basic:

A "Structured Settlement" is a settlement where you, the parent, have very little control. The settlement is "structured" by the terms of the distribution of the money.

A Trust is a legal tool used to benefit a person for specific purposes, yet the control is retained by the trustee. I am the trustee of my son Matthew's "Special Needs Trust", which we set up in order to shield his small assets from use for paying back any benefits awarded to him by the government, for instance, SSI.

I prefer the control and distribution that a Trust allows. Additionally, being an Investment Manager myself, I can invest the proceeds as I see fit.

I've had to become quite versed in Trusts since my son's BPI, however I already had a background to begin with. Trusts by far, provide far more control than structured settlements, guardianships, or other financial tools.

Just my .02 cents.

Thanks,

John Anthony Ferrado

[claudia]

We used both. The bulk is in a structured settlement as that was all the Judge would allow (to say he is conservative is to understate...). However, we have a substantial sum in trust for medical purposes and to pay us back for things we pay for that are directly related to her care.

It works for us.

claudia

[angryparent]

Claudia,

I can understand the conservative nature of the judges in these cases. Having had to deal with a very conservative judge down here, they are just looking out for the child. What they don't understand is that most parents who go through BPI with their child have an unusually high dedication to their child after learning what has happened. Our judge didn't even know what it was until we told him about BPI. He then commented that the settlement we managed to win for Matthew was way too low. Let's just say he's not enamored with doctors. That makes two of us. :>)

I'm glad it worked out for you. Best to you and your family.

Sincerely,

John Anthony Ferrado

[admin]

We have both as well. Half is in an annuity (structure) and half is in a trust. We felt that the annuity was the guaranteed piece - conservative. And the trust would be able to take more advantage of market changes, etc. and hopefully do better in the long term. Of course we shall see in 20 years what the true outcome is. Having a good investment manager, if you have a trust is important so that the investments are done well.

Don't be swayed by structures that say that they are tax free, fee free, etc. A lot of that stuff is HIDDEN and you are just seeing the net numbers. On the trust side, there are trust fees, investment fees, etc. And you have to pay some attorney somewhere to write the trust agreement. It's just all on the outside and not hidden.

I like to tell people to find an independent (unbiased) trust attorney who you can sit with for one hour as he/she explains all that is available in your county and explain the plusses and minuses of both sides so that you can make an informed and conscious decision.

Also, you should not have to go to court every time you need to get money for a medical or educational expense. It's all in how the trust agreement is worded. Have the attorney explain income vs principle to you. Hope this helps.

[admin]

We too decided it would be in our child's best interest to split the funds. We decided to put more into the trust, since return rates on the structured annuity were real low when we settled. The trust has the ability to make a substantial amount more and it allows us to take out money as needed. The sense of security that the structured annuity provides is important to some people, including myself, which is why we decided to put a portion into the structured annuity. However, the "tax free" advantage can be a little deceiving when you start to utilize the formulas they do and compare numbers. I think when we purchased our son's, that the fixed return rates were around 5%. It is confusing because that does NOT translate to an actual "interest" rate that your money will earn. It was really helpful to find out the formulas the annuity companies use to figure what the return on your money will be. If you find a nice person willing to share, they should also be able to give you a formula that allows you to figure out what interest rate the trust would need to earn, to get the same return as the structured settlement.

Remember people have their own motivations for swaying you in one direction or the other, so really mess with the numbers and research all you can. We created a variety of scenarios on spreadsheets. Some people are not terribly informed by their attorneys regarding the advantages and disadvantages. Sometimes structured settlements seem to be the push and our attorneys practically did not even give us a choice until we really started questioning and researching on our own. I have even heard that the defense attorneys often work with particular structured settlement companies and get better deals. There may even be some states that don't allow trusts. For us, a combination is what seemed to offer us the best of both worlds. Time will tell.

[angryparent]

Dear guest,

Being an investment manager, I couldn't agree with you more about the value of having an experienced advisor.

Now, on the Annuity. There are variable annuities that can allow you to fully take advantage of the market, using tools like dollar cost averaging, true diversification, asset allocation and rebalancing. These annuities can also guarantee principal, which is key. The best thing about an annuity is the fact that the earnings grow tax-free.

I would certainly rely on the Trust attorney for the wording and type of trust, however it is the Investment Manager who will determine the success of the underlying investments within the trust. Certain trusts and guardianships mandate approval by the judge in regard to certain types of withdrawals, however most trusts will place the majority of the financial dealings with the trustee(s).

Furthermore, an annuity is merely the investment, and can be placed inside a trust, or separately, outside the trust. FYI...

John Anthony Ferrado

[admin]

Dear John,

We talked to several structured annuity companies across the nation and were told that you cannot have a "variable" annuity with a structured settlement. From our research and all the people we spoke with, structured settlements never fluctuate with the market. They have particular conditions and we were told they are only based on "fixed" rates. We looked into this in depth, so if we were misinformed by a few of the biggest companies out there, then I am a little upset to say the least. At first, I thought, well maybe this is something that only applies to our state, but then I realized we spoke with companies and brokers all over the nation.

Did a structured annuity company/broker tell you that you can indeed purchase "variable" annuities for structured settlements? I am just confused since this is not what we were told and it played heavily into our decision making process. I can share the companies we spoke with; some specialize strictly in structured settlements.

Any feedback would be appreciated.

[angryparent]

Sorry, I didn't mean to confuse the two issues. With "Structured Settlements", Variable Annuities typically cannot be used, as the terms dictated by the courts do not allow for the use of Variable products. So the advice you were given is correct. This is part of the reason that I do not care for Structured settlements, because of the loss of control.

I was merely discussing Annuities as the product. I use Variable Annuities within Trusts many times, as I prefer the flexibility, guarantees, and tax treatment of the VA's.

But with regard to structured settlements, you have been well advised. Again, didn't mean to confuse the issues.

Hope that helps.

John Anthony Ferrado

[victorpetro]

I would think that a structured settlement would be better than a trust fund when dealing with social security thinking about a structured settlement is financial. In definite circumstances, it will be better for a severely disabled plaintiff to set up a special needs trust, than entering in to a lump sum or structured settlement.