How to Include a Personal Injury Settlement in an Estate Plan
Personal injury settlement compensation is a hard-won asset. In order to be awarded this kind of compensation, you must have suffered significant consequences as the result of an injury or the loss of a loved one. It’s important to safeguard this hard-won asset proactively so that the value of that compensation isn’t placed at risk of becoming compromised unnecessarily by tax burdens and the probate process. In addition to speaking with a financial planner regarding how best to safeguard your compensation for the remainder of your life, it’s important to speak with an estate planning attorney concerning how best to address your settlement within the context of your estate plan. Doing so will help to ensure that your compensation is both protected generally and distributed according to your wishes specifically after you have passed away. Appropriately safeguarding your compensation within your broader estate plan will also help to ensure that this asset remains protected in the event that you become incapacitated.
Taxation and Management Considerations
When individuals pass away, their debts don’t usually dissolve as a matter of course. The estate of a deceased individual therefore must settle relevant debts before the remaining value of the estate can be distributed according to the wishes of the deceased. Therefore, if you don’t want your settlement money to be used to pay off your debts after you’re gone, you’ll need to address your debts while you remain in a position to do so.
Most elements of personal injury settlement awards are afforded to injury victims on a tax-free basis. However, this doesn’t mean that a settlement will remain immune from taxation if it is transferred, gifted, or distributed as part of an estate plan. As a result, it is important to speak with an attorney about whether your particular settlement award is significant enough that it may be subjected to estate taxes in the event of your death. If so, you’ll want to consider structuring your estate plan in specific ways in order to safeguard its value to the best of your ability.
Chances are good that you’ll be able to insulate much of your settlement from taxation (and better ensure that your settlement is distributed in exactly the ways you intend) by placing it in a trust before you pass away. There are different kinds of trusts available that serve various purposes. Therefore, you’ll want to speak with an attorney about which trust structure will best serve your unique needs and intent.
Legal Assistance Is Available
If you’ve been awarded personal injury settlement compensation, it’s important to be forward-thinking about how you choose to safeguard this asset, as the lawyers at Cohen & Cohen can explain. Addressing how any of this compensation not spent during your lifetime will be allocated after your death is a time-sensitive matter. None of us knows how much time we will be permitted to enjoy before our estate plans become our loved ones’ urgent business. As a result, it is critical that you speak with an experienced attorney about how to effectively safeguard your settlement compensation through the estate planning process. Failure to take this step proactively may lead much of your compensation to become compromised by tax burdens, debt collection, and the probate process. Schedule a risk-free consultation with an attorney today to learn more about the estate planning strategies applicable to your unique situation.