SETTLEMENT TRUST SERVICES. Guided by the Strength & Values of America s Credit Unions

Transcription

1 SETTLEMENT TRUST SERVICES Guided by the Strength & Values of America s Credit Unions

2 Settlement Trust...More Than Just Taking Care of the Money MEMBERS Trust Company will act as the trustee of a Settlement Trust that is funded by a lump sum payment or periodic payments from a structured settlement. As a trustee, we will develop an Investment Policy Statement that serves as a blueprint for managing the trust assets, monitoring investment return and risk, and meet with the beneficiary to access needs and any change in personal circumstances. In the development of the Investment Policy Statement, our trust officer will work with the plaintiff and other members of the settlement team to evaluate long-term liquidity and capital needs of the plaintiff, risk tolerance, time horizon, and total cash income and distributions from all sources. But, MEMBERS Trust Company sees our role as more than just taking care of the money. Most settlement trusts are set up as a tool to protect the plaintiff from financial risks and poor money management. To accomplish these goals require a trustee to prudently manage assets in the trust as well as gaining the personal trust and confidence of the plaintiff. As the trusted advisor, we want and encourage the plaintiff to collaborate with us on major expenditures and life decisions that may impact their financial security and protection, which the settlement trust is intended to either accomplish or, at least, contribute toward.

3 Lump Sum or Structured Settlement MEMBERS believes every settlement should be Structured and should provide the optimum financial protection and security for the plaintiff. The IRS defines Structured Settlement under IRS 5891 as an arrangement to provide for periodic payments to a party in a law suit. But, MEMBERS Trust Company, FSB defines Structured settlement to mean a well thought-out payment plan to provide optimum financial protection and security for the plaintiff, taking into consideration taxation, economic value or net worth, and the personal circumstances of the plaintiff. The best interest of the plaintiff may be best served by arranging for periodic annuity payments meeting the requirements under IRC 5891, a lump sum payment or a combination of both these payment options. Taxation of Settlement The general rule is that interest and investments gains generated within settlement trusts are taxable while earnings from the annuity are not. Damages awarded for a personal injury suit are generally excludable from federal income taxes but the nature of the injuries as well as the underlying claim will affect excludability. The actual marginal tax rate on earnings and gains within a settlement trust will depend on the type of income: exempted interest from municipals bonds, capital gains from stocks, and stock dividends or ordinary interest from CDs or bonds. Certainly, taxation of the earnings and the settlement itself should be reviewed in developing the best payment options to fund the settlement.

4 Economic Value/Net Worth of Settlement Determining the economic value of the various settlement options in terms of both present dollars and future values should be an exercise undertaken by the settlement team. The Investment Team at MEMBERS Trust Company can provide assumptions regarding investment returns and risks necessary to evaluate the economic value of the settlement options. For instance, calculating the present value of the periodic payments of the structured settlement, and then comparing this amount to the lump sum payment would provide an economic comparison of both options. Another economic comparison would be to simulate the structured settlement by calculating an annuity trust payment as if the lump sum was transferred to a settlement trust. To comparatively shop the proposed annuity payment, the settlement team could shop the annuity payment available in the marketing place, independent of defendant entities, utilizing the lump sum payment as the amount of the single annuity payment. Economic worth must be evaluated in the context of financial and investment risks associated with the entities making periodic payments or managing the lump sum. This aspect of the economic review is especially worthy of consideration in light of the recent capital market turmoil over the last three years.

5 The senior investment team of MEMBERS Trust Company is comprised of professionals with experience and professional credentials, including the prestigious CFA charterholder designation, to help determine the economic value of the settlement. Plaintiff Circumstances with Settlement Financial protection and security may be attainable with an award but only if wise choices are made with the investments and spending. Another risk factor for a plaintiff is failure to anticipate medical or other expenses arising from the injury(ies), which may trigger a premature selling of a structured settlement or assets in the settlement trust. MEMBERS Trust Company, FSB counsels clients daily on how to use a trust as a tool to protect a beneficiary from these risks. Every plaintiff brings unique circumstances, goals, family dynamics and personal wishes to the settlement table. It is important the issues raised by these factors are incorporated into a Structured plan to achieve the goals of the settlement. Health Care Management Plan Tragically, many plaintiffs have suffered long-term injuries requiring an intensive health care management plan. MEM- BERS Trust Company will help the family contract with providers and remit payments to employees or independent contractors, reporting income on W-2s and/or 1099s. If consultants are needed to formulate a comprehensive health care plan, MEMBERS Trust Company may make referrals to several providers to accomplish this. In these circumstances, our strategy is to develop a support team for the beneficiary, comprised of the trust officer, family members, and care providers, to provide optimum care.

6 Special Needs Trust With some awards, the plaintiff may be receiving SSI payments and Medicaid benefits at the time of the settlement or may anticipate qualifying for these benefits in the near future. To maintain the eligibility of the plaintiff for these means-based programs, a special needs trust can be created to hold the proceeds of the award. MEMBERS Trust Company, FSB has experience in administering these trusts and coordinating distributions from the trust to protect these public benefits. As trustee of a special needs trust, our goal is to use the assets in the trust to supplement and not supplant the income and medical coverage under SSI and Medicaid. We work with the plaintiff to identify needs the trust can meet while protecting eligibility. For example, MEMBERS Trust Company recently approved horseback riding and training for a beneficiary and paid for these activities directly to the provider as opposed to giving cash to the beneficiary. This allowed the beneficiary to continue a special passion, and payment to the third party did not constitute income for the beneficiary under either SSI or Medicaid. Each of our families with a special needs trust receive our Special Letter of Intent which serves as an estate planning tool for parents and caregivers of a special needs beneficiary.

7 Medicare Set Aside Trust As part of the settlement, settlement proceeds are often used to fund a Medicare Set Aside Trust to maintain the plaintiff s eligibility for Medicare. MEMBERS Trust Company will act as trustee and distribute advances to pay for future medical expenses that would otherwise have been covered by Medicare. For many plaintiffs, the Medicare Set Aside Trust is a very perplexing aspect of the settlement. Our trust office will help the plaintiff team explain the requirements with the Medicare Set Aside Trust and provide ongoing counsel as distributions are made from this trust. About MEMBERS Trust Company Since 1987, MEMBERS Trust Company, FSB has provided trust and investment services to credit union members and private clients throughout the United States. These credit unions with over $80 billion in assets provide MEMBERS Trust Company with its strategic values and underpin our strength as a national trust and investment company. As a special purpose federal thrift, MEMBERS Trust Company is supervised by the Office of Thrift Supervision, a federal banking regulator which oversees banks and special purpose federal thrifts engaged in the trust and investment business. In addition to this agency, the National Credit Union Administration and the FDIC have regulatory oversight authority over our operations. MEMBERS Trust Company embraces a hybrid purpose - a regulatory mandate to operate profitably and a corporate responsibility to support the ideals and values of credit unions. Consequently, to ensure service remains our top priority, MEMBERS Trust Company is accountable to our owners which makes us a truly unique kind of trust company.

8 Corporate Riveredge Drive Suite 280 Tampa, FL (888) Local (813) Fax (813) Denver Office 1009 Grant Street Suite 150 Denver, CO (720) Non-deposit investment products available through Members Trust Company are not deposits of or guaranteed by the trust company, a credit union or credit union affiliate, are not insured or guaranteed by the NCUA, FDIC or any other governmental agency, and are subject to investment risks, including possible loss of the principle amount invested. Members Trust Company is a federal thrift regulated by the Office of the Comptroller of the Currency.