A family in Queens receives a seven-figure settlement after a devastating traffic accident. The money arrives, a result of a long and painful legal fight. For a moment, there is relief. The funds represent a lifetime of lost wages, future medical care, and compensation for immense suffering. But then a new reality sets in. That money, meant to provide security for decades, is now a target for creditors, predators, and poor financial decisions. Without a plan, a fund designed to restore a life can be dismantled in years, sometimes months.
As an estate planning attorney, I don’t handle the personal injury lawsuit itself. My work begins where that process ends. We are called in when families realize that winning the case is only half the battle. The other half is ensuring the award accomplishes its purpose—providing lasting security for the injured person and their family. This is not investment advice; it’s about structural protection. It’s about stewardship.
The Settlement Is Not a Windfall
The first shift in mindset is critical: a settlement is not a lottery win. It is a replacement. It is a fund designed to do the job that a person’s health, body, and earning capacity were supposed to do before they were taken away by someone else’s negligence.
When we structure a plan for a settlement, our first priority is to build a fortress around the funds. For many clients, this involves creating one or more trusts. A properly structured trust legally separates the money from the individual, placing it under the control of a trustee—a fiduciary with a legal duty to manage the assets for the beneficiary’s benefit. This can shield the funds from future lawsuits, divorce proceedings, or claims from creditors.
The structure we recommend depends on the family’s circumstances. Is the beneficiary a minor? Are they now disabled and reliant on government benefits? Are they simply inexperienced with managing a large sum of money? Each question leads to a different path, but the goal is always the same: to preserve the funds for their intended purpose.
When a Personal Injury Becomes a Wrongful Death Claim
Sometimes, the worst happens, and the injured person does not survive. The personal injury claim then becomes a wrongful death action. In these tragic cases, the legal and financial stakes grow, and the proceeds from any settlement or verdict become part of the decedent’s legacy.
Under New York Estates, Powers and Trusts Law § 5-4.1, the personal representative of the decedent’s estate is the one who brings the action. The damages recovered are not for the decedent’s pain and suffering, but for the financial losses suffered by their surviving family members. These funds are meant to compensate for lost wages, parental guidance, and other support the deceased would have provided.
Here, the decedent’s estate plan—or lack thereof—is critical. If they died without a will, the proceeds will be distributed according to state intestacy laws, which may not reflect their wishes. The funds become a public matter, administered through the Surrogate’s Court, with distributions dictated by a rigid statutory formula. A well-drafted will or trust allows the individual to direct exactly how these assets should be managed and distributed, providing for their loved ones with intention.
Protecting Vulnerable Beneficiaries
We take special care when the recipient of a settlement is vulnerable. This includes minors and individuals who have been rendered permanently disabled by their injuries.
Settlements for Minors
When a child receives a settlement, the court will not simply hand a check to the parents. The court’s primary duty is to protect the child’s best interests. This often involves a proceeding under the Surrogate’s Court Procedure Act to appoint a legal guardian of the child’s property. The funds are typically placed in a restricted account that cannot be accessed without a court order until the child turns 18. While safe, this arrangement can be inflexible and administratively burdensome.
A better approach we often design is a structured settlement that funds a trust for the minor’s benefit. This allows a trustee to make distributions for the child’s health, education, and welfare while protecting the principal. The trust can also specify that the child receives the funds in stages—for example, one-third at age 25, one-third at 30, and the remainder at 35—to prevent a financially inexperienced 18-year-old from squandering their entire future.
Preserving Government Benefits
For an individual left permanently disabled, a settlement can paradoxically jeopardize the very benefits they need to survive. A lump-sum payment can disqualify them from needs-based government assistance like Medicaid and Supplemental Security Income (SSI). The settlement money would have to be spent down on medical care until they are poor enough to qualify again.
The legal instrument to prevent this is a Supplemental Needs Trust (SNT), sometimes called a Special Needs Trust. When a settlement is directed into a properly drafted SNT, the funds are not counted as an available resource for determining eligibility for government benefits. The trustee can then use the trust assets to pay for expenses that enhance the beneficiary’s quality of life—things public benefits do not cover, such as specialized equipment, therapy, or accessible transportation. It is an essential tool for providing security without sacrificing a critical safety net.
A personal injury settlement ends one difficult chapter. The next—stewarding that recovery to build a secure future—requires a different kind of advocate. It requires deliberate, prudent planning to ensure the compensation received provides the lifelong support it was meant to.
If your family is expecting a significant settlement from a personal injury or wrongful death claim, the prudent next step is to schedule a confidential consultation. We can review the specifics of your situation and outline a protective structure for the funds before they are received.
