My step-mom who is terminally ill had an accident. Her attorney says that she should take a lump sum settlement rather than a structured settlement because she needs the money now and won't be here to receive the payments over several years. She wants me to get any remaining payments - not a lump sum after she's gone because she is afraid i'll blow it all if I get the full amount at one time. How should she work this out?

She can go one of two ways here, one by way of a structured settlement and the other by way of a lump sum with a settlement trust.

1) Structured Settlement. She can agree to a structured settlement, which may provide a large sum up front to cover her bills, and then may provide periodic payments from an annuity purchased from a life insurance company to cover her ongoing expenses for a number of years or the balance of her life. Some structured settlements will allow any remaining sum to be paid via continuing periodic payments for a specified number of years to a beneficiary after the claimant has passed away. She would have to be very specific with what she wants and make sure the structured settlement is able to give that to her. Not all are set up that way.

(2) Lump Sum with Settlement Trust. The other option, if she decides to take a lump sum instead, is that she can set up what is called a settlement trust.

A trust is a legal entity regarding the ownership, use and distribution of property. To create a trust, the owner/grantor of the property, including money, transfers the property (trust corpus) to another person or company (trustee), who is responsible for maintaining and protecting the property on behalf of one or more persons (beneficiary)—even oneself. Trusts may be either revocable or irrevocable by the grantor. They may be created either during the grantor’s lifetime (intervivos) or by will following the grantor’s death (testamentary). There are many different kinds of trusts, one of which is a settlement trust.

Settlement trusts are instruments that are used in connection with personal injury settlements. They are usually formed during the life of the injured claimant or grantor, and are usually irrevocable, which means the grantor cannot change his or her mind once it is set up. Similar to structured settlement annuities, the purposes of settlement trusts include:

(1) Preventing the claimant/beneficiary from squandering settlement proceeds.

(2) Insuring that those settlement proceeds are used for their intended purposes.

(3) Providing funds in amounts and at times when needed.

Your step-mom can set up a settlement trust with herself as a beneficiary and you as a second beneficiary to receive payments after her death. For further specific information regarding settlement trusts, it would be wise for your step-mom to consult a trust attorney before making any decision. A trust attorney can give her precise information on the tax ramifications and other issues about which she may have questions.