Settlement vs. declaration of trust

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Settlement vs. declaration of trust
Trusts keep assets safe. (Documents image by GHz from Fotolia.com)

A trust is a legal form by which a trustee holds or manages property or money for someone else. Trusts serve a variety of purposes, including keeping assets out of probate, holding property for children until they reach maturity or as a way to pay out the settlement in a lawsuit. What all trusts, including settlement trusts, have in common is that they're created by a declaration of trust.

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Defining a Declaration of Trust

A declaration of trust names the trustee and beneficiaries, spells out how trust assets are to be handled and might identify the assets in the trust, according to Nolo.com, a non-profit legal website. Declarations are also called trust agreements or trust instruments.

Sample Declaration

The declaration creating the Massachusetts Turnpike Toll Equity Trust, for example, states that its purpose is to handle the combined claims of drivers whose toll payments weren't spent the way the law requires. The assets or "corpus" include the money placed into the trust to settle its claims, and the beneficiaries are various classes of drivers, such as those who used the state's "fast pass" system.

Defining a Settlement Trust

A settlement trust is created in order to settle claims resulting from a lawsuit. A settlement trust is used to prevent the claimant from squandering settlement proceeds or to guarantee that they'll be used for a specific purpose, such as paying medical bills, according to the injury-law website. Trusts are also used in class-action lawsuits as a way to organise payments to many plaintiffs.

Settlement Example

A U.S. District Court created the AHP Settlement Trust to administer claims and pay benefits to the plaintiffs in a class action lawsuit against the pharmaceutical company American Home Products. The Manville Trust handles absestos-related claims against the Johns-Manville Corp. The trust was created in 1988, but still has claims to resolve.

Settlement Trust Declarations

The declaration for a settlement trust will specify the beneficiaries: Members of a class action lawsuit, for example, or victims of asbestos-related illness, even if they haven't sued. The declaration might set more specific conditions: The Massachusetts Turnpike Toll Equity Trust declaration, for instance, says that under certain circumstances, the beneficiaries' payments might be reduced to cover lawyers' fees.

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