Frank C. Kilcoyne, CSSC
Volume 19 | October 2007

What Happens When You Die?

We could spend years contemplating the implications of a question like this and still likely never reach agreement.  But I contend that I can do it persuasively in just two pages.  Think I have finally lost it?  In some ways perhaps, but on this issue not yet, rather than pondering the existential issue, I am speaking of what happens to your structured settlement benefits when you die. 

You may think I’m writing about this topic because Halloween looms and I’m having a bit of sport, but for injured people, this a real issue.  It came up recently in the case of a 42-year-old man we will call Barry Bauer (name changed).  Barry was unfortunate enough to have suffered a debilitating head injury that landed him in a care facility for the remainder of his life.  We worked extensively with Barry’s attorney; a separate special needs trust attorney and his 64-year-old mother Sally to put together a settlement that would guarantee Barry the best care possible for the remainder of his life.  His mother insisted on this because, at her age, she could not expect to be around to take care of him for long.

After paying off all liens, fees, and expenses, we put together a package that provided the Barry Bauer Supplemental Needs trust with an initial cash payment of $597,000 and additional funds of $7,076 per month guaranteed for 15 years certain and the life of Barry Bauer whichever was longer.  The initial cash payment was made on November 7th 2006 and the first monthly payment was received by the trust on November 16th 2006. 

We used a Supplemental Needs Trust because a great portion of Barry‘s care was covered by both Medicare and Medicaid.  The use of a Supplemental Needs Trust allowed Barry to benefit from the settlement without losing these critical benefits.  However, this preservation of benefits does not come without some restrictions.  One limitation speaks directly to our main topic:  what happens to the remaining funds in the trust when Barry dies? 

In any structured settlement we make provisions for a certain portion (if not all) of the future guaranteed payments to be paid to the claimant’s estate or beneficiaries in the event they die before collecting all they were due. As a rule, we recommend the claimant direct the guaranteed payments into their estate and allow their will to redirect the funds from that point on, in line with their larger estate plan.  This way, they can revise and update their will as often as they like without having to involve the annuity issuer, the trustees and potentially the courts.

Bear in mind that one can choose to have such remaining future guaranteed payments continue to be made in periodic payment form or have them commuted to a single cash payment upon death.

This case came to mind because Barry Bauer died late last month.  His mother called me to learn how the remaining 14 years of guaranteed payments would be made. I informed her that the remaining future payments would be commuted to present value and a cash payment for that amount would be made to the Barry Bauer Supplemental Needs Trust.  I went on to tell her that after all liens had been paid off, any remaining funds would be paid out in accordance with the terms of the trust, in this case to The Estate of Barry Bauer.  In short, I advised her that everything would go exactly as per the language of the controlling documents: the settlement agreement and release, the third party qualified assignment agreement and the Supplemental Needs Trust document.

In the months we spent designing a settlement plan for Barry Bauer we were concerned with one thing: giving him the ability to live in the care facility near his mother as comfortably as possible for the rest of his life.  Barry died much sooner than anyone expected – but we had planned for that possibility by providing for the minimum 15-year guarantee in case the unthinkable happened.  The commuted value of the remaining 14 years of those payments will provide a great deal of money to Barry’s Estate.

What happens when we die?  We may never learn where our spirits go when all is said and done but when you’re designing financial packages for seriously injured people; you had at least better know where their money is going to go.

Do you have a case where prudent planning can make a real difference?  Call Frank C. Kilcoyne, CSSC at 800-544-5533, I am here to help.