A Local 79 laborer falls from scaffolding at a job site in Manhattan. After two years of litigation, he receives a seven-figure settlement. The money hits his checking account, and for the first time since the accident, his family feels a sense of relief. But that relief is often temporary. I have seen cases where, within a few years, a life-altering settlement is depleted by poor financial decisions, unexpected creditors, or a divorce—leaving the injured person with no long-term security.
The personal injury lawsuit is over. But the work of protecting that recovery—of turning a monetary award into a lasting legacy—has just begun. A settlement check is not a plan. It is a raw asset that requires deliberate stewardship.
The Settlement Arrives. Now What?
The most dangerous moment for a personal injury settlement is the day it becomes liquid. Without a structure in place, the funds are exposed. They are vulnerable to claims from creditors, they can complicate eligibility for government benefits like Medicaid, and they can become a point of contention in marital disputes. We field calls not from personal injury attorneys, but from the families themselves, often months or years after the fact, asking how to salvage what’s left.
This planning must happen before the money arrives. The purpose of a settlement is to compensate for a lifetime of lost earnings, future medical expenses, and pain and suffering. It must be managed with that time horizon in mind. My role isn’t to second-guess the litigation that produced the award; it’s to ensure the award fulfills its intended purpose for the client and their family. This requires a shift in mindset from winning a case to managing a generational asset.
The first step is recognizing that these funds should not be co-mingled with a standard checking or savings account. They need to be insulated, not just for asset protection, but for clarity of purpose. This is where trust planning becomes essential.
Building a Fortress Around Your Recovery
For many clients who receive a significant settlement, the appropriate instrument for this work is an irrevocable trust. By placing the funds into a properly structured trust, you are creating a separate legal entity to hold and manage the assets. You, the beneficiary, can receive distributions for your health, education, and maintenance, but the principal is shielded.
This isn’t a theoretical benefit. If a future, unrelated lawsuit were to arise, the assets inside the trust are generally beyond the reach of a judgment creditor. If the recipient of the settlement needs long-term care and must qualify for Medicaid, the funds in a specific type of trust—a Supplemental Needs Trust—are not counted as available assets.
This is codified in New York law. EPTL § 7-1.12 specifically governs the creation of supplemental needs trusts for individuals with severe and chronic disabilities. The statute provides a clear legal framework that allows a disabled person to benefit from settlement funds without jeopardizing their eligibility for essential government benefits. The trustee has a fiduciary duty to manage the funds prudently and make distributions that supplement, not replace, public assistance. This is a powerful tool for long-term stability.
The Dangers of a Windfall Mentality
Without a formal plan, a settlement can feel more like a lottery winning than a calculated replacement of future income and care. This can lead to disastrous outcomes. A person who can no longer work might be tempted to make large, ill-advised investments or extravagant purchases, quickly eroding the principal that was meant to last for decades.
If the recipient dies without a trust, the remaining settlement funds simply become part of their probate estate. This means the money is subject to the delays and expenses of Surrogate’s Court, and it will be distributed according to their will—or if they have no will, according to state intestacy laws. This process leaves the funds exposed to estate creditors and can take months, if not years, to resolve. It is the opposite of an intentional, deliberate transfer of wealth.
A trust bypasses probate. It contains clear instructions for who the successor beneficiaries are and how the remaining funds should be managed for them. It transforms a personal injury award from a simple cash payment into a carefully managed legacy. Stewardship.
The work of a personal injury attorney is to secure compensation for a harm that has been done. Our work is to ensure that compensation serves your family for generations. The two are inextricably linked.
If you or a family member is expecting a significant settlement from a personal injury case, the most prudent next step is to arrange a settlement protection analysis. In this meeting, we can review the nature of the award and outline the specific trust structures that will act as a proper custodian for these funds, preserving them for the lifetime of care they are meant to provide.
