Is a Settlement Plan Worth It? Here's Why

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John
October 23, 2023
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Settlement Planning is a holistic approach to helping clients preserve their financial benefits following a personal injury case. It includes strategies for establishing and maintaining financial goals, allocating settlement proceeds, and complying with government benefit income thresholds.

They Are Tax-Free

Structured settlements offer several benefits to injured plaintiffs. One important use is that they are tax-free. This can help plaintiffs avoid a large tax bill from a lump sum award or payments made quickly.

They can also help prevent the loss of government benefits. This can be done by spreading the settlement award over a longer term and using methods that meet income thresholds set by SSI, Medi-Cal, and Medicare. This type of planning requires a specialized skill set to ensure a client is protected and well cared for. It can involve creating a plan for allocating the settlement proceeds, trusts, Medicare Secondary Payer Act compliance, lien resolution, and estate planning for minors or incompetent injury victims. It can also involve unique planning vehicles such as structured settlement annuities. It includes evaluating and determining the most appropriate payment schedule, ensuring a steady cash flow, and addressing ongoing financial obligations.

They Are Flexible

A settlement plan professional will assess a plaintiff’s unique financial situation and goals. Then, they will build a customized plan that meets those needs. This might include a periodic payment plan, trusts, methods for complying with income thresholds for government benefits programs, and more.

For example, a catastrophically injured client may be able to use their settlement to buy an investment-backed structure or traditional structured settlement annuity that allows them to receive payments over time. This will allow them to spread their funds and save for future expenses, such as college tuition or retirement.

Alternatively, they can sell their structured settlement payments for immediate cash. However, this will cost them by discounting the future payments they are owed. This is a major financial decision that should be carefully considered. If your client is considering selling their structured settlement payments, they should consult a trusted financial professional. The advisor will be able to identify better alternatives that do not cost as much.

They Are A Good Investment.

Structured settlements provide a steady stream of income that can help protect families from financial risks. These risks include excessive spending, poor advice or requests from friends and family members, bad investment decisions, and volatile market changes. Structured settlements also can help ensure that a person’s life savings will not run out before they die.

Settlement planners can help individuals manage their settlement funds and identify ways to minimize tax liabilities. They can advise on unique planning vehicles such as structured settlement annuities and special needs trusts. They can develop strategies that help injured people allocate their settlement proceeds into the right financial vehicles while preserving eligibility for government benefits. For example, they can recommend strategies that allow a disabled person to invest their money in assets that are exempt from the spend-down limit of needs-based public benefits programs, such as a primary residence, vehicle, and medical equipment.

They Are A Good Way To Avoid Bankruptcy.

Settlement planning is a complex law area requiring a team of professionals, including personal injury attorneys, financial planners, and CPAs. These individuals help clients allocate their lawsuit proceeds while ensuring they have enough income to maintain their quality of life. They also create strategies that will not jeopardize a client’s eligibility for government benefits programs.

During the debt settlement process, a person stops making payments on their loans and instead begins to accumulate funds in a separate account. Once a substantial amount has been saved, the creditor is approached to negotiate a debt payoff amount. This type of plan is often the best way to avoid bankruptcy. Filing for bankruptcy will severely impact your credit, and it can impede your ability to qualify for new loans or obtain employment.