Leveraging Structured Settlements:  Take Full Advantage Their Many Benefits

Settlement planners are dedicated to providing comprehensive and creative settlement planning solutions for clients.  The Settlement Planners create holistic plans that take into account the specific needs of the client by matching them up with available financial products to meet those needs.  Structured settlements are an important financial product that is frequently used by such planners to meet a clients’ needs.

The settlement planning industry began with one unique solution that was offered to clients starting in the early 1980s, structured settlement annuities.  The traditional structured settlement is a great solution for many situations involving replacement of income or quantifiable needs.  It typically is the cornerstone of any sound financial settlement plan since it is a fixed income vehicle.  While the settlement planning field has changed and evolved over the last forty years adding many new products to its repertoire, traditional structured settlements still have some great benefits to offer those who receive a personal injury settlement.  The most commonly discussed benefits are:

Tax Free Interest (Federal and State)

No Market Risk (Payments and Terms Set at Time of Purchase)

Creditor Protection/Judgment Protection

Non-Marital Property

No Ongoing Management Fees

Those are all great benefits, but here are some practical ways to use the traditional structured settlements to take full advantage of all they have to offer:

MSA Funding – Set Aside Less: An annuity is an allowable funding vehicle and provides your clients with the lowest cost to fully fund their Medicare Set Aside.          The use of a structure to fund the MSA allows the client to essentially fund at the present value versus fully funding with one deposit.  It also allows the client to potentially utilize Medicare to cover more items by spending down the MSA each calendar year as opposed to spending down the full amount before Medicare will cover their portion.

Medical Costs – Fund at Present Value: One of the reasons CMS allows you to use an annuity to fund your MSA is because it is a guaranteed payment.  It is not subject to market fluctuations.  This is a good reason to consider a structure to pay for the future anticipated medical expenses.  Clients cannot have accounts that fluctuate wildly when they need to pay for their future medical care.  And just as with a set aside, you can fund the cost of future medical at a discounted rate with rated ages and the time value of money.

Minor Settlements – Control Timing of Income:  The structure can be used in some jurisdictions to avoid the need for guardianships or other low interest vehicles that become accessible to a minor at the age of majority.  Utilizing a structure, you can create payment streams well past the age of majority to avoid careless spending or quick dissipation upon reaching age of majority.

Lifetime Guarantees – Transfer the Risk of Outliving the Money: This is a truly unique feature of all income annuities.  It is one of the only ways to create a guaranteed payment that a client cannot outlive.  With a structured settlement, a client doesn’t have to worry about running out of their settlement monies.

Fall Back Plan – Deferring Payments until a Later Date:   Not all clients like the idea of tying up the majority of their settlement money in a structured settlement.  A good way to still get the benefits and allow some freedom is to pair an investment account with a deferred structured settlement.  You can have payments start 15 to 25 years later that will help replenish what was spent and create a guaranteed payment the client can count on at a lower cost.  So even if all other investments fail and spending is too high, they will have a fall back plan.

Pair it with a Trust – Protect the Cash Flow with a Fiduciary:  A structure is a great option to pair with a trust.  It can lower the cost of professional administration since only assets actually in the trust are subject to fees and it is a great vehicle for the fixed income portion of an overall investment plan inside of a trust.  It also creates additional protection against secondary market companies trying to purchase the payments by pairing the structure with the trust.

Dollar Cost Averaging into an Investment Portfolio – Take Advantage of Market Price Fluctuation:  A structured settlement can be used to purchase monthly payments that go into an investment portfolio.  This can help diversify the dates of investments and create an automatic investment plan.  This will help lower the risk of purchases your positions in the market on a “bad” day.

Covering Fixed and Determinable Expenses – Guaranteed Cash Flow:   A common way to set up a structured settlement is with a monthly payment that covers the fixed and determinable costs of a client.  If they need to have $1,500 per month for the rest of their life, a structured settlement can create that income stream.  It can be paired with a COLA to make sure the $1,500 keeps up with inflation.

Attorney Fee Deferrals – A Super 401k or IRA for Attorneys:  An attorney fee structured settlement is a great way to add diversification to an attorney’s retirement plan.  In conjunction with a 401K, IRAs and other available plans, the structure can be used to create income that is not restricted by the 59.5 rule.  It is a pre-tax and tax deferred investment vehicle for attorneys.

In summary, a structured settlement has many benefits and different uses.  You should take full advantage of all that it can offer an injured client for their recovery as well as for your own attorney fees.  The available products, investment options and other tools change almost daily in the financial settlement planning area.  Make sure your clients have all the available options when they create their personalized settlement plan.