The big story of 2022 is the in-crease in the cost of groceries, fuel and most other living expenses for American families and households. To combat rising prices, the Federal Reserve has continued to increase rates to a level at which some Treasury yields have more than doubled since January. Not all news is bad – the rise in yields and fixed returns is allowing injured plaintiffs to benefit from larger payments and more settlement dollars provided by current structured settlement rates.
Attorneys, as fiduciaries and gate-keepers, decide how and when to introduce injured clients to the concept of a structured settlement – payments over time that off er additional tax, growth, and protective benefits. Attorneys may not also realize that they can defer income tax this year and grow the overall value of contingent legal fees by structuring fees to pay over time before constructive receipt occurs.
Th ese are good reasons to explore how a well-designed structured settlement, or structured attorney fee, can complement existing plans for the future.
A settlement most often is the largest financial transaction an injured person will be involved with during their lifetime. It is not the lottery: an injured person and their family haven’t “won” anything. Th e money will not suddenly create a successful business owner or solve life’s problems. A lump-sum may look good to an injured party; the reality is that a large amount of cash is not suit-able or practical for people who do not have experience managing large amounts of money over long periods of time.
Certain situations present moral and ethical questions for attorneys about the distribution of settlement proceeds. Is it appropriate to hand a million dollars to someone who has suffered a brain injury? Or an 18 year old with an infant child and no social support system?
To safeguard against the real risk of premature dissipation and financial predators, a payout consisting of cash (or a trust), and payments over time, is a practical option that attorneys can recommend and explore with injured clients. Instead of a check and handshake offering good luck, clients receive a financially secure path for-ward as they transition to the future.
The best time to introduce a structured settlement is well before the case resolves – with the help of a qualified and experienced settlement planner.
A structured payout is attractive due to its simple payment schedule and tax-free growth that has little to no downside risk. And with current rates, this growth can be significant:
Example 1: A 20-year-old elected to receive $500,000 of the recovery as long-term monthly payments – their projected total payout is over $1,500,000.
Example 2: A Guardian Ad Litem recommended $1,000,000 be placed in guaranteed and market-based (growth) structures together – the minor child (or their estate) will receive $1,000,000 minimum and all growth payable, currently projected to be more than $5,700,000.
Example 3: A local personal injury attorney elected to receive $375,000 in legal fees as annual payments for 30 years, to supplement the fi rm’s overhead budget and long-term planning. The projected payout is more than $975,000, and the income is recognized in years when it is actually received.
Attorneys play an important role in if/when a structured payout is discussed and should not overlook the tax-free growth made possible from this current rate environment. The decision to discuss a structured settlement, and the future payments that an injured client will receive, can provide a lifetime of security and appreciation.
“I was involved in a car accident at age 17, that resulted in a broken femur and kneecap that required several surgeries. I structured approximately 65% of my settlement that helped pay for college, lump sums at ages 35, 40, and 45 to help pay for life events, and lifetime monthly income. Although the guarantee period is over, I can’t outlive the monthly payments – and they have supplemented my income for over 24 years. I structured a large portion of my settlement. Looking back, I was 19 at the time and thought I needed the remaining money in cash. It’s been 30 years since my settlement and the only regret I have is that I didn’t structure all the money. Th e cash I received was spent within a few years.” – L.S.