As much as we try to put safety first in the workplace, sometimes accidents happen and people get seriously injured. If you’ve been involved in a work-related accident and have suffered an injury through the avoidable fault of another, you’ve likely gone through the process of applying for and receiving a workers’ compensation settlement. While the sum of this settlement can be life-changing and provide you with much-needed financial relief, it’s only the first step in the recovery process. Since receiving such a large sum can be overwhelming, we recommend sitting down and engaging in estate planning after a workers’ compensation settlement, as this will better help you to protect your newfound assets.
What Is Estate Planning?
Estate planning is the process of organizing your financial affairs to prepare for incapacity or death. This includes, but is not limited to, creating a will or trust, designating beneficiaries, making funeral arrangements, and planning for the distribution of your assets. Estate planning also encompasses making decisions about your future healthcare, in case you’re unable to do so at a later time. By engaging in estate planning, you can ensure that the assets from your workers’ compensation settlement are distributed according to your wishes. You may also be
able to minimize the amount of taxes owed on your estate and avoid potential probate fees.
Why You Should Set Up a Will or a Living Trust
In the cases of serious injuries, workers’ compensation settlements can cause a major influx in wealth, making it all the more important to set up a will or trust. If you were to pass away without one of these legal documents in place, your assets would be distributed according to your state’s intestacy laws. This means that your assets may not go to the people or causes that you care about the most, as the state would make the decision for you. You can prevent this from happening with a will, which is a legal document that allows you to specify how you would like your assets distributed upon your death.
Now, if you are married or have children who are dependent on you, it is recommended that you also set up a living trust. This is a legal entity that can hold your assets and property during your lifetime, and after you have passed away, the trustee designated in the trust agreement is the one responsible for distributing your assets according to the terms of the trust.
Common Reasons to Set Up a Trust?
Setting up a living trust is recommended if you are looking for the trustee to use your accounts to benefit a child or spouse, or protect the assets from financial losses, lawsuits, or divorce proceedings. It’s also important to note that a trust can be used to protect property until your children reach an age that you feel is appropriate for them to inherit it.
Why a Trust Does Not Replace a Will
While a living trust does not completely replace the need for a will, it can be used to supplement your will. For example, you can use a living trust to avoid probate or to hold assets that you want to pass on to your beneficiaries outside the probate process.
Are Settlements Protected Against Creditors?
Whether your workers’ compensation settlement is protected against creditors depends on the state you are in, as some states do provide protections for personal injury money. In a state where there are protections in place, you would have to place the settlement money into a separate account or in a designated investment so that the settlement proceeds are delineated and protected against a creditor’s claim.
In states where there are no protections against creditors, it is recommended that you either place the settlement funds into a trust that protects agaisnt creditors claims, like a Domestic Asset Protection Trust (DAPT) or into investments that are accessible to you but not to your creditors.
Looking Ahead At Incapacity
In addition to planning for death, it’s also important to plan ahead for the possibility of incapacity. Not only can a trust direct a trustee on how the accounts, settlement, and property should be distributed, but it can outline how these assets should be managed if you become too unwell to manage them yourself. It is recommended that you designate a person to be your Power of Attorney, as this individual will have the legal authority to make financial decisions on your behalf if you become incapacitated. Financial decisions may include accessing your accounts, handling bills, managing investments, dealing with insurance companies, or handling certain legal matters.
Finally, it is highly advisable to also designate a healthcare proxy through a healthcare directive or living will. This type of document allows you to specify which types of medical care and treatments you want to receive if you are unable to communicate your wishes, and designates someone to make these healthcare decisions on your behalf. This can include decisions about life-sustaining treatment, pain management, and end-of-life care.
Wrapping It Up
After receiving a workers’ compensation settlement, consider consulting an estate planning attorney to make sure that your newfound assets will be protected, managed properly, and that your wishes are carried out to your exact terms in the event of your death or incapacitation. If you have any questions about estate planning, or would like to get started, please contact our office to speak with one of our experienced attorneys. We can help you determine the best way to protect your workers’ compensation settlement.