Assisting Attorneys with Settlement Proceeds

Attorney Collaboration

What are the different options available to you when settling a case on behalf of a plaintiff? There are various options available depending on the type of plaintiff that you represent.

Is the Plaintiff…

  • A competent adult (18 or over
  • A minor (under the age of 18)
  • An incompetent adult

If the Plaintiff is a competent adult:

  • Court approval is NOT required unless requested by one of the parties.
  • The money can be distributed outright.
  • A structured settlement can be purchased with the money.

A Special Needs Trust can be established without court approval. Some important details of a Special Needs Trust are:

  • Government benefits will not be lost.
  • The trust is for a person with a disability.
  • This is an irrevocable trust.
  • The trust must be used solely for that Plaintiff.
  • Upon the death of the Plaintiff, Medi-Cal must be paid back.
  • Plaintiff can establish an Obra ’93 Trust:
    • Medi-Cal benefits will be preserved.
    • Loss of SSI, Section 8 housing, and other benefits.
    • Trust can be revocable or irrevocable by Plaintiff.
    • Upon the death of the Plaintiff, Medi-Cal is not paid back.

If the Plaintiff is a minor or incompetent adult:

  • Court approval IS required.
  • The money CANNOT be distributed outright.
  • If the amount is less than $5,000, it could be paid to a custodial parent and put into trust for the minor. (See Probate Code Section 3611(e) and 3401)
  • A Special Needs Trust may be an option but MUST be established by the court. (See Probate Code Section 3611(c), 3604, and 3602(d))
  • The money can be distributed to a blocked account, which would require court approval to release the funds. (See Probate Code Section 3611(b))
  • A structured settlement can be purchased with the money. (See Probate Code Section 3611(b))
  • A Settlement Trust can be established. Revocable by the Plaintiff when they turn 18 if competent. (See Probate Code Section 3602(c)(3) and 3611(g))
  • Guardianship (for a minor). (See Probate Code Section 3611(a))
  • Conservatorship (for an incompetent adult). (See Probate Code Section 3611(a))

Common attributes between Settlement Trust and Special Needs Trusts for a minor and incompetent adult are:

  • Both are under the Probate Court’s supervision.
  • Accountings must be filed with the Court.
  • Expenses may include:
    • Investment Fees
    • Bond. Accounting fees.
    • Attorney’s fees.
    • Trustee’s fees. (See California Rules of Court 7.903)

Is a Special Needs Trust or a Settlement Trust a good option?

  • If the amount is small, then it may not be worth it.
  • If the amount is too big, then a Special Needs Trust may not be an option because the Court must make a finding that the amount going into the Trust does not exceed the Plaintiff’s needs (very rare).

Who should be the trustee of a Special Needs Trust or a Settlement Trust?

  • A family member.
  • A bank.
  • A private professional fiduciary.

Civil court or Probate court?

  • In the Los Angeles County Superior Court the Civil Court approves settlement and Petition to approve Special Needs Trust. Copies of the Trust and Petition are lodged with the probate clerk. (See LASC Local Rule 4.115(c)
  • In other courts, the Civil court approves the settlement, and the Probate court approves the Special Needs Trust.