Are you possibly looking to receive a financial settlement? Maybe from a personal injury case, lawsuit settlement, or even the lottery.
You’re not looking for money management advise to pay down debt or a mortgage. The issue here is how to protect these incoming funds from you or your heirs personal finance problems.
One situation that arises is that these funds are ‘subject to’ any sort of personal financial problems such as civil judgments or tax liens. These obligations are sometimes called “withholding orders.”
Your name and a description of the problem is recorded in the “general index” of the county you reside. If such an order were to exist, then any type of financial windfall would be instantly reduced by any outstanding obligations.
Example:
| Settlement | $500,000 |
| Civil Judgement | -$250,000 |
| What You Get | $250,000 |
Another situation arises whereby the recipient wants to keep the proceeds safe from any marital changes. For example you have a divorce proceeding underway but not yet have the final decree. If you were to get these funds prior to finalizing the divorce, they could be subject to community property and shared with your soon to be ex-spouse.
Or what if you wanted a specific individual to get the proceeds from your settlement? Maybe children from a previous marriage that need help with medical, educational or life expenses. You have a spouse that is financially comfortable. You don’t need any more family conflicts.
In all three previous examples what you do is setup a trust to receive the settlement.
This isolates the funds from any personal obligations. You have control of the funds as the trustee. Even if you have no preexisting situations, insulating these settlement funds can safeguard them from any future problems.
If you receive the funds and later have a financial problem, these funds could be at risk for attachment. Just think of using a trust to hold these funds as a small but powerful insurance policy.
In most states there are methods for creditors with judgments to file a lien against personal or real property of debtor. The county in which you reside has what is call the ‘general index’ of publicly recorded documents. If your name and any lien is listed here, it can instantly attach to any asset with your name.
By having property in a different name (trustee) a judgment will not attach to your financial settlement.
There is no existing system that notifies an outstanding creditor you have a financial settlement forthcoming. There is no system for them to identify any trust over which you have control.
Even in the remote case a creditor discovers the trust, it’s not your ‘personal’ funds. For them to prove otherwise takes time, effort, and research. Most creditors are too busy with a deskful of easier accounts to collect.
Furthermore if you are receiving a sizable fund and likely to make major investments, the trust can give you negotiation privacy.
If you have settled outstanding liens make certain with the Recorder’s office that they are cancelled from your file. Do this before accepting the settlement. No surprises.
You might also want to keep the settlement confidential. The privacy aspect of a trust keeps your money safe from nuisance lawsuits. Grifters and their lawyers are always looking for an easy mark. Make yourself a difficult target for new found ‘friends.’
Another benefit of using a trust is for inheritance purposes. You can identify heirs next in line to receive any financial benefits from this settlement. This keeps the money private and safe from any financial problems of your heirs.
Summary
The easiest and best solution is use a Business Trust to hold your settlement.