For Disabled Clients
Special considerations come into play when a case is settled on behalf of a disabled person. Investment options for a disabled person’s settlement funds
are limited and are subject to scrutiny by Probate judges.
Illinois Probate Act
The Illinois Probate Act, 755 ILCS 5/24-21, “Deposit of investment of money of a ward, subject to court order”, states that a court may order a disabled person’s settlement funds be invested in the following:
- Deposited in a bank that is FDIC insured;
- Deposited in a State or Federal Savings & Loan that is FSLIC insured;
- Invested in United States obligations;
- Invested in shares of any State or Federal credit union.
Investment Options (Per Probate Act and Local Court Rules)
Certificate of Deposit
- A CD pays a relatively low interest return and there are penalties for early withdrawals, making CD’s inefficient for providing an adequate stream of income.
- Any interest earned is fully taxable.
Savings/Checking/Money Market Accounts
These vehicles pay a very low interest return. Interest is fully taxable.
U.S. Treasuries do not provide a hedge against inflation, due to their very low rate of return and are subject to Federal taxes. They also must be held for a very long time to receive any decent rate of return.
For cases involving disabled adults, as set forth above, the investments must be restricted. There are many bank management fees associated with the creation and maintenance of a trust account:
- Attorney fees associated with the preparation of the trust
- Annual bank management fee of 1-1.25% of assets held in the trust.
- There is also typically a minimum annual fee
Generally, income generated is fully taxable and typically at a very high rate. Lastly, and maybe most importantly, Bank Trusts can lose money. Disabled clients should not be exposed to this possibility.
- The structure plan that is instituted by the parents and/or guardian is guaranteed for the duration of the plan. Money cannot be lost.
- Structured settlements provide a guaranteed tax-free stream of income.
- Plans are specifically tailored to meet the individual needs of the disabled person through regularly scheduled payments.
- Structured settlements eliminate the risk of mismanagement and also protect the disabled person from unscrupulous individuals.
- Stringent government regulation ensures that structures are safe.
- Because of the tax-free nature of structured settlements, and the long horizon investment platform of the underlying investments, the rates of return are the highest of any guaranteed investment option available.
In conclusion, because of statutory limitations on non-structure investment options and the inherent benefits of structured settlements, a structured settlement is by far the best option for a disabled person.