Many families of children with special needs look forward to an impending legal settlement with a mixture of relief and anxiety. While reaching a settlement represents the end of litigation, resolution brings a host of new concerns and risks.
It’s likely that your family has many pressing questions, the answers to which will only become more important in the days and weeks ahead. Our birth injury attorneys often work closely with the experienced settlement planners at Milestone Consulting to help families meet these challenges head-on.
Does My Child Need A Settlement Planner?
While “need” is a strong word, we believe that most families who expect to receive a settlement will benefit from the guidance of an experienced settlement planner.
As mediation or arbitration nears resolution, your family will have numerous important choices to make, all of which can significantly impact your child’s long-term well-being.
Children with special needs often require especially nuanced settlement planning to safeguard their eligibility for government benefit programs. At the same time, any settlement plan for a child with disabilities will need to allow considerable flexibility for unforeseen expenses in the future. Moreover, the settlement plan will need to make up for the child’s lost earnings, ensuring a steady stream of income. An experienced settlement planner can help your family meet all of these goals with confidence.
Keep in mind that the majority of financial planners have little experience guiding clients through the unique pitfalls of the settlement process. While financial planners help a wide range of clients, qualified settlement planners focus specifically on injury victims. This specialized experience can help injury victims and their families maximize the proceeds of a settlement, guarding against risks and helping meet future financial goals.
When Should We Contact A Settlement Planner?
While settlement itself usually represents the end of litigation, most clients will be best-served by involving a settlement planner early in their case.
Things can move quickly during a lawsuit, but nearly every decision made during the settlement process will have long-term ramifications. As always, time is of the essence. It’s important to have a clear picture of the road ahead, along with the difficult and complex financial choices that will be offered, before any documents are signed.
The Society of Settlement Planners recommends meeting with a qualified settlement planner between 30 and 60 days before the beginning of mediation or arbitration.
What Is A Structured Settlement?
Historically, the majority of legal damages paid out in personal injury lawsuits were offered to plaintiffs as a one-time lump-sum. This method of disbursement placed enormous financial obligations on victims and their families. Most people just aren’t prepared to make momentous financial decisions in a split-second. Injury victims were frequently taken advantage of and many settlement recipients quickly lost their hard-won proceeds.
In 1982, Congress passed the Periodic Payment Settlement Act, formally recognizing and encouraging an innovative new method of disbursement that could protect injury victims and their settlement proceeds.
Structured settlement is a method of disbursement in which the proceeds from a birth injury lawsuit are distributed to the plaintiff as a number of tax-free payments over time. Using this method, plaintiffs can benefit from a steady stream of income, allowing families to meet their child’s ongoing medical needs. Even more, a structured settlement can promise long-term financial security, rather than a short-term windfall that can be quickly exhausted. While structured settlement can be a decision made privately between parties, it’s often required by court order, especially in cases that involve minor plaintiffs.
How Does A Structured Settlement Annuity Work?
Structured settlements usually come in the form of an annuity, a financial product sold by life insurance companies that allows people to invest their money in tax-advantaged accounts that pay out a stream of regular payments. As a way of handling personal injury settlements, structured settlement annuities are purchased by the defendant’s insurance company, rather than the injury victim.
An annuity’s payment schedule can be tailored to meet the needs of each individual client, along with contingencies that may or may not arise in the future. Many contracts can trigger cost-of-living increases, or be designed to take advantage of future medical breakthroughs that would inconceivable today. Annuities can even be structured to pay out a lump-sum initially, while also providing ongoing monthly income.
Will The Annuity Be Protected?
Most annuity contracts provide for a period of guaranteed payments, often monthly payments over the course of 20 years. Beyond this period of guarantee, clients usually choose annuities designed to offer a non-guaranteed stream of income for the claimant’s lifetime.
The majority of states have strong insurance laws, which ensure that an insurance company’s obligations will be met. If an insurer becomes insolvent, their policies and insurance claims will continue to be covered by the applicable state’s guaranty association.
What Benefits Can A Structured Settlement Offer?
While the majority of personal injury settlements are considered tax-free, according to the Internal Revenue Service, interest that accrues to the settlement is not. Without careful financial planning, both federal and state taxes can easily threaten the proceeds from a personal injury settlement, along with a victim’s long-term financial security.
In line with the Periodic Payment Settlement Act, structured settlements have been designed to offer major benefits over lump-sum settlements, most notably in the context of taxes.
Once a structured settlement annuity has been purchased, income made in the form of interest is not subjected to taxes. Depending on a family’s tax bracket, injury victims can save up to 25% to 35% in state and federal taxes on the annuity’s interest income by opting for a structured settlement. Otherwise, this income would be taxable.
Beyond their tax advantages, structured settlements are remarkably flexible. With the help of an experienced settlement planner, your family can design a structured settlement that meets your child’s unique needs and goals.
What Is A Special Needs Trust?
As we mentioned earlier, many children with disabilities rely on government benefit programs to meet their living and healthcare needs. While these benefits are critical, many government assistance programs are means-tested, available only to recipients with little income and few assets. Medicaid and Supplemental Security Income are two notable examples. Accepting a personal injury settlement without cautious planning can jeopardize a child’s continued eligibility.
Establishing a Special Needs Trust is one solution to this problem. Assets in the trust, which will be managed and disbursed by a trustee, are used to benefit a beneficiary with disabilities, but allow them to remain eligible for means-tested government benefits. A structured settlement annuity can even be designed to pay directly to the trustee of a special needs trust.
How Can I Learn More?
Interested in finding more information on the settlement planning services offered by Milestone Consulting? Feel free to contact our experienced attorneys today.