Plaintiff Settlement Planning

A structured settlement is a financial solution that allows an injured party a means of deferring part, or all, of the settlement. Proceeds are distributed on a schedule determined by the plaintiff, as opposed to all at once. A settlement planning expert works with the plaintiff’s attorney and the injured party to review long-term medical, living, and family-related expenses. Upon assessment of financial needs and goals, an agreement of recovery for the structured settlement is established by the injured party and funded by the defendant.

The structured settlement is then placed with a third-party company to fund the payments. Based on the payment schedule determined by the plaintiff, the company provides a series of tax-free payments established over a period of time.

If receiving payments is a good choice for your client, we will discuss:

• How much of the settlement funds they need immediately,
• If the payments should come in for a set number of years or the rest of their life,
• How often they will receive payments,
• The size of the payments, and
• Whether the amount should change over time.

When deciding between receiving a one-time lump sum payment and periodic payments, it’s important for your client to think about their personal financial goals and plan for long-term financial security. By receiving payments over time, they can manage their money more easily into the future.

A structured settlement provides a long-term, steady stream of tax-free income. It is a unique settlement method that has proven to be a premium solution when seeking to secure the benefits of personal injury, wrongful death, or workers’ compensation claims/torts.

Historically, personal injury lawsuits have paid damages as single lump sums. Though receipt of a single lump sum may provide temporary financial relief, additional burden for the plaintiff is inevitable. The demands required to manage large sums of money can be overwhelming. Additionally, for those receiving income-based benefits, receipt of a lump sum may result in loss of Medicaid, Supplemental Security Income (SSI), or other means-tested government programs.

Congress recognized the need to protect injured plaintiffs from these risks and passed legislation to amend the Federal Tax Code, resulting in The Periodic Payment Settlement Act of 1982 (Public Law 97-473). This act formally recognizes and encourages the use of structured settlement payments in physical injury cases.

• Freedom from the time and emotional burden associated with investigating, assessing, and selecting investment strategies.
• Flexibility in the amount the client receives and the timing and frequency at which they receive it.
• Assurance that injured clients’ structured payments are exempt from federal and state income taxes.
• Contentment for clients in knowing that they have a steady stream of income.

There are generally two types of special needs trusts. Depending on your unique situation, one may be a better fit for your client.

A pooled special needs trust is managed by a national 501(c)(3) nonprofit corporation formed to provide trustee, trust administration and advocacy services for the disabled, elderly, minor children and those seeking spendthrift trust protection. The assets from all the participants are pooled together, but maintained and tracked in individual trust sub-accounts.

A private special needs trust is a personalized disability trust drafted and prepared by a local trust attorney. Typically, a private special needs trust is used when a person has a large amount (i.e. greater than $250,000) to deposit into the trust. To utilize a private special needs trust you must generally be under age 65, have been determined to be disabled and the trust must be created by a parent, grandparent, guardian or the court.

Special needs trusts are flexible and can be used to greatly improve quality of life. The trust funds can be used for a variety of supplemental goods and services, including:

• Special medical or exercise equipment generally,
• Handicap-equipped primary automobile,
• A home (but not necessarily its maintenance), and
• Many other goods and services that Milestone can discuss with your client.

The specifics of what a special needs trust can cover depends on the public benefits your client receives. Timing is critical, however. A client must create or join a special needs trust before accepting the settlement proceeds.

When a person receives a settlement, a variety of unexpected future financial issues could put those assets at risk. Divorce, starting a business, or another life event can dissipate the money over time, whereas bankruptcy or another catastrophic loss can be immediately impactful. Both scenarios cause a person to benefit far less from that large lump sum than he or she could have. Establishing a domestic asset protection trust (DAPT) is one way to protect against these risks.

A DAPT is an irrevocable trust that offers an opportunity for lifelong planning and financial protection. The goal is to shield the interest of the beneficiary in such a way that trust assets are firmly protected against creditor claims. Anyone can get a DAPT to protect assets at any time.