To be one of the best trial lawyers in the country, you can’t do it alone. You likely have a mentor, a paralegal, a team of associates or colleagues, business partnerships, and then some. These people and resources help you prepare for litigation, and they help you succeed in a trial or settlement negotiation. But if you find yourself getting ready to close the book on a client as the verdict or settlement approaches, you’re missing a major step that most of your competitors are already taking.
While the settlement of a lawsuit may feel like an end to you, to your clients it is a new beginning. That’s why thinking ahead to what happens after litigation is the new standard of care for trial lawyers in providing the best client service in every case they handle. And as an added benefit, thinking about post-settlement or post-verdict before the case’s conclusion can also benefit the attorney and his or her firm.
Think about it this way. Many, if not most of your clients have never had that much money in their possession in their entire lives. While you have done your part to achieve that substantial sum to cover their needs arising out of their injury, do you know if they will spend it wisely? Will they make it last a lifetime? There are numerous financial resources available to plaintiffs that can set them up for a successful future once your fight for them is over, but they might not know about them without your guidance.
Planning for government benefits
First and foremost, injured clients are likely receiving some kind of government-provided benefits. Many of these programs are needs-based; in other words, the beneficiary must stay under a certain threshold of income in order to maintain eligibility. As you would assume, a huge settlement or jury verdict could put them over that threshold overnight and cause them to lose their benefits. The way they pay for medical care, equipment, and other associated expenses would then be disrupted. Thankfully, a personal injury award does not have to mean that government benefits have to go away. There are several planning options, depending on which benefits the plaintiff receives and how close they are to the eligibility threshold. For example, for personal injury clients who are on Medicare, the program is known as a secondary payor; in other words, Medicare does not pay for their medical expenses until the culpable party pays for a certain percentage of the care. To avoid disqualification for benefits, the client can establish a liability Medicare set aside, which is a voluntary arrangement that demonstrates a good-faith effort to fund his or her future care without relying first on Medicare.
But Medicare isn’t the only government program that can be the Achilles’ heel of settlement planning. Medicaid and Supplemental Security Income are both needs-based benefits with a low ceiling in the resources they provide each person – low enough that many disabled individuals supplement the payment for their care in other ways. Again, receiving a large lump sum can disqualify your client from both programs. But instead of discontinuing benefits, clients in this situation have several options. They can establish a special needs trust to supplement their government benefits by paying for non-covered services or equipment. They can also try to re-qualify for benefits by employing a spend-down strategy to use their “excess income” – meaning income above the amount that allows a person to qualify for benefits – on benefits-exempt resources.
Tax-free earnings are still a mainstay in the personal injury space. A structured settlement offers the client the option to receive all or a portion of the personal injury compensation through a series of payments over time rather than a lump sum. For some, a structured settlement can help smooth out the issues that may arise from receiving a large monetary recovery all at once. There are tax-related advantages, as 100 percent of structured settlement payments are exempt from federal taxes.
Oftentimes, a verdict or settlement comes up all at once, and there isn’t adequate time for everyone to plan ahead for the influx of income. And you don’t want to keep the defense waiting as you work with your client (and your own financial advisor) on planning. Enter the qualified settlement fund. This end-of-litigation resolution technique has proven invaluable in creating time and space for families in catastrophic litigation. QSFs can be created on an individual basis, or your entire firm can have one that holds proceeds whenever necessary. Defendants pay what they owe, releasing them from their responsibility in the case. Then, the funds stay within the QSF as the plaintiff(s) and attorney decide, individually, how they want to receive it.
The most important variable plaintiffs need as they reach settlement is smart, future-focused advice. We welcome you to contact Milestone to learn how we can help you, your clients, and your practice.
This content should not be viewed as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Milestone Consulting, LLC, is not engaged in the practice of law or accounting.