The Importance of Protecting Your Client’s Financial Future Post Settlement

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One of the most rewarding aspects of practicing law is the difference that we make in our client’s lives. A successful settlement or verdict can be life changing. Sometimes, this is the only opportunity an injured child or adult may have to access quality medical treatment and finance the burden of living with his or her injury.

The question often remains – as attorneys, does our duty to act in the best interest of and protect our client end when documents are signed, and checks are cut? Or, do we have a responsibility to do more at settlement? Clients face significant challenges during and after resolution, many of which a cash lump sum and parting handshake is not enough.

Clients have the option to receive part of their settlement over time – as a structured settlement. This arrangement allows funds inside of the structured settlement to grow income tax-free resulting in a larger total recovery to the client. Punitive damages and non-physical injury cases are taxable, or if structured, tax-deferred until the year payments are received. Future payments can also be guaranteed for when they are needed most, even for a lifetime. Most importantly, structured settlements protect vulnerable clients from people that may harm them or unsound investments that may put their financial security at risk. This allows injury victims to focus on their health and recovery rather than managing a large sum of money with no experience or knowledge.

It is imperative that attorneys involve a dedicated structured settlement expert to assist with the process and consult on the design of a payment plan that is sound and appropriate for the client. In any minor’s case or in cases where my client is considering a structure arrangement, I always rely on Nathan Evans with Arcadia Settlements Group in Jacksonville.

I recently settled a medical malpractice/ wrongful death case involving the death of a young mother during childbirth. In this case, her only legal survivor was the baby boy she left behind. Because this child is only 3 years old, Nathan was able to work with his guardians and devise a financial plan which would begin paying at age 18 and finance any college expenditures or living needs he may have for many years. The structured settlement will guarantee this child over two and a half times the amount of money initially placed into the structure.

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We, as attorneys, should keep in mind that the process for finalizing a structured settlement is different than a cash settlement. Care must be taken to avoid constructive receipt so that the growth inside the structured settlement remains tax-free to the injured client. Under no circumstances should any settlement funds be deposited into your firm’s trust account if your client has elected to structure those funds. Additionally, specific language should be included in the release (and minors’ order) if a structure option is chosen. A structured settlement expert will have the appropriate language and documents available for distribution.

In many instances, clients are unaware that they may have the option to structure funds for the future. This is, in part, because plaintiff attorneys may simply be uneducated as to the process and may underestimate the potential advantages to their clients. In the 2001 case, Grillo v. Pettiete, a trial attorney and guardian ad litem were forced to pay a settlement in excess of $4 million in a legal malpractice case when they failed to adequately consider and advise their client of a structured settlement.

Due to the current low interest rate environment of U.S. Treasuries, structured settlements are currently evolving to address a wider range of needs. New market-based options may offer an increased opportunity for tax-free growth and market-related returns. Other options can increase payments every year depending on the performance of a market index such as the S&P500. Additionally, in the event of an emergency, certain structured settlement options allow for a hardship provision that commutes partial future payments into an immediate lump sum while preserving payment rights.

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Structured settlements have been widely used and supported for more than three decades. Congress recognized the importance of compensating injury victims and has enacted legislation to protect structured settlements and payee’s payment rights. Structured settlements have been endorsed by many organizations including the American Association of People with Disabilities, National Consumers League, and former presidents of the ABA.

While structured settlements may not be appropriate in every case, it is important to educate ourselves as attorneys and advocates whose oath requires us to act in the best interest of our clients. It is our responsibility to discuss all settlement options and give our clients the best opportunity for post settlement success. Lindsay Tygart

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