Don't Ignore Structures

Don't Leave the Benefits of Structured Settlements on the Table
Structured settlements provide safety, security and guarantees at a competitive after-tax return with low risk in today's interest rate climate, with no money management fees.

Plaintiff lawyers who practice personal injury, products liability, employment law and other specialties who are dismiss structure settlements without exploring their client's needs, in advance, create needless risk exposures for their clients and possibly themselves.

Some of the Reasons that we've heard, include (but not limited to):
  • "the case isn't big enough and it's too much work"
  • An inner monologue that goes something like this "I've got them a great number, I've done my job and I just want to get paid"
  • lack of awareness that such a solution exists (employment settlements)
  • lack of awareness that a solution exists that includes employer delegating an agent to handle the tax withholding responsibilities  (LTD settlements)
  • misperceptions about where interest rates are going
  • The lawyer (or the client) is seduced by potential investment returns in the stock or bond marketswithout a clear understanding of the impact of volatility (1) on the client's defined and undefined needs/outflows (that the lawyer may have used in obtaining their recovery)
  • Some lawyers do not want to get involved in the structured settlement planning process because they feel that they are not trained in this area. Fair enough, but then it's important to bring in your own structured settlement and settlement planning expert or encourage clients to seek one out.It has been shown in a number of court cases that plaintiff lawyers may be held accountable to their clients for not presenting a structured settlement offer as part of the overall settlement. Plaintiffs' lawyers can mitigate this exposure by consulting and retaining their own skilled structured settlement expert to guide them and their clients through the structured settlement and settlement planning process. Consider the following two cases:     
Christina Grillo, a Texas plaintiff in a personal injury case which was settled in 1991, sued her attorneys and the guardian ad litem for legal malpractice. Among the allegations was that Defendants "failed to employ or consult with competent, correctly informed experts before final constructive receipt precluded creating a qualified structured annuity for Plaintiff". Additional allegations included the failure to establish or preserve SSI and Medicaid eligibility. The case against the attorneys concluded on March 23, 2001 (the case against the ad litem was settled separately. But the cost as to all Defendants was for a combined $4.1 million! (2)

In the New York matter of Lyons v MMIA, the plaintiff sued the defendants and their representatives for negligent misrepresentation on the cost of a structure, and the resulting influence on the decision to settle. He also sued his attorneys for legal malpractice on this case, which was settled in 1987. The Supreme Court of the State of New York initially granted summary judgment in favor of the Defendants on July 13, 2000. However the Appellate Division 2nd Dept. reversed this on September 17, 2001. The plaintiff's lawyers could've saved themselves a great deal of headache and money by retaining their own broker (3)

Note: The subsequent passage of the New York Structured Settlement Protection Act,  New York General Obligations Law §5-1702 , places burdens on the defendant or the defendant's legal representative to make up certain front disclosures that include the cost of the structured settlement, which is verifiable from a structured settlement annuity quote produced by an appointed New York licensed agent/broker of a New York regulated life insurance company, as opposed to the present value, which is a number that is the result of a recognized financial formula that can be manipulated by changing the assumptions in the formula. At the time of the Lyons settlement with MMIA, the probability of a settlement expert engaged by the plaintiff was remote. Over the years the New York landscape has changed and it is common, generally accepted in New York (and everywhere else) and very often productive, for structured settlement experts or settlement planning experts to be engaged by both defendants and plaintiffs.

The personal injury attorney, who fails to discuss a structured settlement, or worse submits a signed general release to the Defendant's legal representative where the structure payments are not part of the consideration forever loses his or her client's opportunity to participate in one of the most significant tax breaks available. The tax savings when structuring either taxable or non-taxable periodic payments can result in a sizeable difference.

Failing to Consider Employment Structured Settlements Especially Costly
Plaintiff employment lawyers who fail to consider structured settlements in their employment practices liability practice needlessly expose their clients to a massive year one tax bite and possible alternative minimum tax (AMT) exposure. At the very least the clients should be informed of their options.Read more about employment structured settlements.

For those clients that have investment experience and risk tolerance, a traditional structured settlement can be integrated with a a companion investment portfolio. Most financial planners and journalists would agree that a diversified portfolio includes conservative investments such as traditional structured settlements. The "tax-free" payouts on qualified structured settlements, may produce higher returns than comparable investments with taxable earnings.  Alternatively, periodic payments provide an ideal source for "dollar cost averaging", a strategy of investing the same amount of money each month or quarter that lowers the per-share cost over time.

Longevity Risk is a real concern (and not only for seniors)
Life expectancy is increasing at a rate close to one percent a year, making a person with a 20 year life expectancy at retirement actually live about 50% longer than the expectancy table says. (4)  Could your client outlive their settlement? Not if it includes a structured settlement that pays for life. If the injury is permanent, the settlement should be too!

Structured settlements provide a competitive after-tax return with low risk in today's interest rate climate with no money management fees.
A structured settlement really is sound financial planning offering guaranteed, dependable payments, which can help ensure that settlement money is not squandered, swindled or lost. A 1992 cite by the Rutter Group (5) stated that insurance industry statistics reportedly show that 90% of all settlements are dissipated within 5 years. Protect your client and protect yourself and your firm!

Notes
  1. See Monte Carlo Analysis and Simulation
  2. Grillo v Pettiete et al. Cause No.96-145090-92 and Grillo v Henry Cause 96-167943-96, 96th District Court, Tarrant County, TX
  3. 730 N.Y.S.2d 345
  4. The Other Side of Retirement Planning, Michael Stein, CFP
  5. The Rutter Group, Ltd., from Flavahan, Rea, Kelly & Tener, California Practice Guide: Personal Injury  (TRG 1992) Chapter 4 Section 213
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