According to the U.S. Dept of Justice, no more than 5% of personal injury cases make it to trial. Most personal injury lawsuits end in settlements. In those cases when a trial goes to verdict, plaintiffs are successful about 50% of the time. This means a settlement provides a guarantee of the relief agreed upon while going to trial has the success rate of a flip of a coin. Once an award is received, many attorneys consider their work finished.
In a recent interview with former NCAJ President John McCabe, we discussed how you can help safeguard your client’s future.
Yanke: What are the most common mistakes clients make after receiving a settlement?
McCabe: One of the biggest mistake clients make is thinking they can manage the money on their own. Such thinking leads to ignoring good advice and not seeking experts in appropriate fields. If safeguards aren’t put in place, the money may go right through their hands.
Also, there are factoring companies making an industry of victimizing people with structured settlements. They offer to buy out the settlements for pennies on the dollar—sometimes for less than 10% of the original value! When clients sell their structured settlements at these predatory rates, they undermine their financial security and jeopardize their futures.
Yanke: What happens to clients who mismanage their settlement?
McCabe: Where clients are capable of making financial decisions, loss through mismanagement leaves them without relief. There are no do-overs. They cannot come back and reopen their case if they don’t preserve the settlement proceeds.
Yanke: What advice do you give to clients to help them plan for their future needs?
McCabe: No matter how large the settlement, the client hasn’t become “rich.” The money is there for a reason. Each dollar covers some amount of damage. These funds should be preserved for current needs and invested prudently to cover future needs. The client sought the services of an attorney because they didn’t know the law. Now, they should seek the services of a financial professional to deal with financial matters.
Yanke: When do you refer your clients to a financial planner?
McCabe: When the settlement is in sight, it’s time to prepare. As attorneys, we should help clients understand the connection between the funds and their damages. We need to do everything we can to steer them in the right direction to get the help they need to preserve their recovery and to protect their future.
Clients should understand that not all damages are immediately apparent, and they need to plan for the future and exercise patience and prudence in financial management. Referring them to a financial planner starts to build their financial team—which should include tax and structured settlement professionals as well. As settlement nears, this team should be actively involved in planning for the client’s future.
Yanke: What should be addressed in the financial plan for the client?
McCabe: There are two main areas of concern: present and future. In the short term, the client is recovering from some sort of catastrophic loss. The funds must be preserved and available to meet these immediate needs.
Some losses are not fixable in the short term, so the plan must also address long-term needs. There may be ongoing medical needs or major life events for the family that are years in the future. If there is no allowance for growth in the plan, it won’t keep up with inflation.
According to John, these are just some of the ways attorneys can help beyond the courtroom. The goal is recovery for the client. The process is just beginning for the client when a settlement is received. Attorneys can offer guidance honed through experience to help preserve what has been gained through the legal process.
Make sure to discuss all legal, tax, and financial matters with appropriate professionals.
