Plaintiff Settlement Planning

Settlement planning can be integrated into Milestone’s Pathway platform. The experience is customizable based on the general needs of the claimants in a given litigation. For example, the settlement planning step can provide video resources and literature on complying with the income limits of government benefits programs. Or, Pathway can provide a full settlement planning feature that gives claimants the option to receive a call from a member of our team. If they choose to explore settlement planning, we will discuss all their available options, including trusts, traditional and investment-backed periodic payments, and more.

Plaintiffs have options beyond a structured settlement annuity, though it is still a good choice for some. Others choose an investment-backed payment arrangement. Individuals with government benefits like Medicaid and SSI might set up a special needs trust to supplement their benefits and help them maintain eligibility. Those with Medicare need to comply in unique ways, and a settlement planner can guide them properly. Other trusts, like a domestic asset protection trust, help provide asset security. There is no cost or obligation for a plaintiff to consult with Milestone about settlement planning.

Some strategies that may help individuals preserve their means-tested government benefits include:

• Pooled special needs trust
• Private special needs trust
• Structured settlement annuity
• Investment-backed structure
• Spend down

There is no fee or obligation to consult with a settlement planner at Milestone.

Medicare is a secondary payer, which means when an injured person has certain types of insurance coverage or compensation, such as a settlement, other parties are legally responsible for paying first for medical expenses related to the injury before Medicare pays.

Primary payers might include:

• Workers’ compensation
• Settlement from a personal injury lawsuit
• Liability insurance
• Group health plan insurance
• No-fault insurance

If those primary payers do not cover the full cost of services, Medicare may then become responsible for the balance of payment. Beneficiaries risk a denial of coverage for future medical expenses if they do not comply with Medicare’s rules. A Medicare set aside is one way to avoid compromising their coverage.

A structured settlement allows an injured party to defer part, or all, of their settlement money. The plaintiff receives smaller payments on a schedule they have chosen, instead of all at once.

Structured settlements are customizable. A settlement planning expert works with the plaintiff to review long-term medical, living, and family-related expenses and come up with a plan. A third-party company then funds the payments using the settlement the defendant has paid. Based on the plaintiff’s chosen payment schedule, the company provides a series of tax-free payments over time.

If receiving payments is a good choice for your client, one of our settlement planning consultants will discuss with them:

• 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. Historically, personal injury lawsuits paid damages as single lump sums. Though a single lump sum may provide temporary financial relief, managing a sum 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 1983 (Public Law 97-473). This act formally recognizes and encourages the use of structured settlement payments in physical injury cases.

A structured settlement can ensure settlement funds last long into the future and can help avoid disqualification from means-tested benefits.

• 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.

An investment-backed structure is a next-generation tool for plaintiffs to spread and grow their settlement over time.

Instead of receiving their settlement in a lump sum, a plaintiff can establish a periodic payment schedule that provides the funds they need now and allows the rest to grow in a tax-free or tax-deferred investment portfolio. A modern alternative, investment-backed structures typically offer better growth than that of a traditional structured settlement.

Key features include:

• Tax-free or tax-deferred gains, depending on the type of settlement
• Fixed payment schedule
• One-on-one initial consultations and ongoing check-ins
• Confidentiality
• Customization
• Collaboration with a personal financial advisor, if applicable

The decision to structure and invest settlement money must be made before a lawsuit concludes. The settlement planning consultants at Milestone can discuss all available options with your client.

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

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 nonprofit pools the assets from all the participants together while maintaining and tracking 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 greatly improve quality of life. The trust funds can pay 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 your client receives a settlement, their asset may come at risk due to a future unexpected and catastrophic event. A domestic asset protection trust ensures their settlement and financial future are protected.

A domestic asset protection trust is a bank account that no one can access but the person who owns it. A DAPT should protect against financial losses from judgments, creditors, bankruptcy, divorce, business failure, and liability from accidents.

DAPTs may be especially useful for individuals who:

• Have a net worth that exceeds several hundred thousand dollars,
• Are in a higher risk profile profession,
• Have assets that may be exposed to lawsuits, or
• Believe their assets are worth protecting.

Anyone can get a DAPT to protect their assets at any time. But when a settlement is meant to cover medical care and other expenses over an injured person’s lifetime, establishing a DAPT safeguards those funds now and in the future. With the right plan and trustee, a DAPT can be especially effective for a parent or spouse caring for a person with special needs.

Clients who have means-tested benefits but also have an immediate need for their funds to cover high-ticket items such as a home, a modified vehicle, or to pay off debt, might consider a spend down.

A “spend down” is the process of literally spending the money received from settlement down below the income threshold for means-tested government benefits. Your client would take the full settlement amount as up-front cash and then spend those funds before the next calendar month.

Typically, a lump sum is considered “income” in the month it is received. Any income not spent in the month of receipt will be countable as a resource in the following month. So, if an individual spends their settlement money within the same month, it won’t count as income the following month when benefits programs evaluate finances.

It’s recommended your client have a spending plan in place prior to receiving their settlement funds so they can take action immediately upon receiving them. This is something your client could do on their own. To ensure they have as much time as you need to spend funds, they should make payment selections as close to the first of the month as possible.

Clients could even consider taking a portion of the settlement to spend on immediate needs and then structuring the remainder into a periodic payment plan.