Why Settlements Under $1M Still Need Professional Planning

Posted on October 4, 2021

It’s easy to think the settlement amount you’re receiving from a personal injury case is too small to require the help of a settlement planning and management company. However, settlements of less than $1 million need professional planning even more than large payouts to ensure they last and are structured to meet your current and long-term needs.

Settlements are intended to ensure long-term financial security and compensate you for a personal injury or illness, wrongful death, or workers’ compensation case. Settlement planning is an ever-expanding, multi-disciplinary area of law created to assist you in protecting your settlement. There are many ways to structure your settlement, but the goal is always to maintain your quality of life, ensure your financial future, and provide the most benefit to you.

Customization to meet your needs

Every case is unique, so it is critical to customize each settlement plan to best meet each client’s needs. We take into account your current and future financial needs, education goals, retirement, estate planning, tax implications, and eligibility for needs-based government programs such as Medicare and Supplemental Security Income (SSI). We’ll form a clear picture of your current situation and future plans to help put together the right combination of options for you. This is especially critical when the total settlement value is between $250,000 and $1 million – so those funds are beneficial for as long as possible.

Receiving a lump sum vs. periodic payments

Plaintiffs can receive a lump sum with their entire settlement or set up a schedule of smaller payments over time. It is possible to set up a combination of both: receive a larger, one-time payment and the rest of the settlement in a series of payments over time. You can decide if the settlement should be paid for a set number of years or the rest of your life, how often you receive payments, their amounts, and if the amount changes over time.

When deciding between receiving a one-time lump sum payment and periodic payments, it’s important to think about:

  • Personal financial goals,
  • Long-term financial security, and
  • Tax regulations.

The risk of a lump sum payout is that the money can be quickly spent on large item purchases, inexperience at managing relatively large sums of money, and requests for loans from family or friends. Rapidly spending the settlement money prevents long-term financial security. By receiving guaranteed payments over time, you can manage your money more easily and have peace of mind that you will continue to receive funds into the future.

Another thing to keep in mind is if the lump sum is invested and earns interest or dividends, those items are taxed. Alternatively, most periodic payments qualify for tax-free status (with the exception of punitive damages and payments for non-physical injuries), and so does the growth on the account. You can also choose to start receiving your structured settlement payments immediately or postpone payments and allow interest to accrue, growing the total annuity. Some plaintiffs benefit from placing their settlement into an investment-backed structure, which tends to offer even more growth than a traditional annuity.

With so many options available, it is important to work with an expert like Milestone when creating your settlement agreement to ensure your money is accomplishing your goals and meeting your needs. It is always helpful to contact us as early in the settlement process as possible. As your settlement management company, we will work closely with you and your attorney to put a customized plan in place before your settlement is finalized.

At Milestone, we want you to get the most out of your settlement. Give us a call at 716.883.1833 or toll-free at 855.836.2676 to chat with one of our team members about securing your future.