A construction worker from Brooklyn falls from a scaffold. After two years of litigation, his personal injury attorney secures a seven-figure settlement. The family breathes a sigh of relief, believing their financial future is secure. But often, this is where a new set of problems begins—problems the original lawsuit was never designed to solve.
As an estate planning attorney, I’ve seen the aftermath. A personal injury lawyer has one primary goal: to get you the largest possible check for your suffering and economic loss. They do their job, and they do it well. But their job typically ends the moment that check is cashed. My work begins at that same moment. A large, unstructured cash award is a fragile thing—vulnerable to future creditors, divorce, and poor financial decisions.
The conversation isn’t about winning the case. It’s about what you do with the result to create lasting security for your family. It’s about stewardship.
The Settlement Is Only the Beginning
When a significant sum of money enters your life, it becomes part of your financial identity. If it’s simply deposited into a checking account, it’s exposed. A future car accident, a business deal gone wrong, or a judgment against you could put the entire settlement at risk. If you get divorced, those funds may be considered marital property subject to division.
Furthermore, that award is now part of your taxable estate. Without proper planning, a substantial portion could be lost to estate taxes, shrinking what you intend to leave for the next generation. The victory won in court can be quietly eroded over time without a deliberate plan to protect it.
This is why we often work in concert with personal injury firms. While they focus on the litigation, we focus on building the vessel that will receive and protect the proceeds. This usually involves establishing specific types of irrevocable trusts designed to shield assets. By placing the settlement in a properly structured trust, it is legally separated from you as an individual. It is no longer your asset for a creditor to seize, yet it remains available for your benefit under the terms you—and your counsel—establish.
Preserving Eligibility for Government Benefits
One of the most immediate and devastating consequences of receiving a personal injury settlement is the loss of needs-based government benefits. An injured individual who relies on Medicaid for healthcare coverage or Supplemental Security Income (SSI) for living expenses will likely see those benefits terminated overnight. The settlement meant to improve their quality of life ends up replacing the very safety net they depend on.
This is not an unsolvable problem. It is, however, a legal trap for the unwary. New York law provides a powerful tool to address this exact situation: the Supplemental Needs Trust, sometimes called a Special Needs Trust.
Governed by EPTL § 7-1.12, a Supplemental Needs Trust allows the settlement funds to be held for the benefit of the injured person without counting as a resource for Medicaid or SSI eligibility. The funds in the trust are managed by a trustee—a fiduciary with a legal duty to act in the beneficiary’s best interest. The trustee can pay for a wide range of expenses that enhance the beneficiary’s life—things like accessible housing, physical therapy, education, and transportation—that government benefits do not cover. The trust supplements, rather than replaces, public assistance.
Creating this trust is not a step to be taken lightly or after the fact. It must be established and funded correctly to be recognized by the Social Security Administration and New York State. This is a crucial conversation to have long before any settlement check is written.
From Windfall to Legacy
What happens if the recipient of a settlement passes away before the funds are exhausted? If held in a personal bank account, the money goes through probate. It will be subject to creditor claims and the public, often lengthy, process of Surrogate’s Court. The distribution will be dictated by their will or, if there is no will, by state intestacy laws.
A trust changes that dynamic entirely. It allows for a seamless transition of wealth and provides clear instructions for how the remaining funds should be managed for children, grandchildren, or other beneficiaries. You can dictate the terms—perhaps staggering distributions to a young adult at certain ages or providing for a loved one’s education. The trust acts as a private set of rules for your family’s financial future, keeping matters out of court and ensuring your intentions are honored.
This is the difference between receiving a payment and establishing a legacy. One is a transaction. The other is an act of intentional, generational planning.
If you or a loved one is in the midst of a personal injury case, the legal focus is rightly on liability and damages. But it is prudent to have a parallel conversation about the long-term stewardship of any potential award. The structure you build to receive the settlement is just as important as the settlement itself.
The first step is to understand what a protective structure for your potential settlement would look like. If you anticipate receiving an award, our firm can schedule a confidential planning session to outline the mechanics of a protective trust and how it would function for your family’s specific circumstances.
