When a child is traumatically injured in an accident or is the recipient of a financial windfall resulting from a settlement involving a parent, the unknowns of the child’s financial future can compound an already emotional transition. Fortunately, there are settlement solutions available to help ensure that the child’s financial future is protected.
Implications of Settling with Cash
There are many reasons why accepting a lump sum cash settlement is not in the best interest of a minor child (and in fact, some states will not allow cash settlements for minors):
Fast Depletion of Funds: An injury settlement is often the largest sum of cash a family has ever handled at one time. Compounding medical bills, education expenses, lending money to friends and family, and emotional spending are all common pitfalls that can quickly eat up settlement proceeds, especially if the family is inexperienced at managing large amounts of cash.
Ineligibility for College Financial Aid: A lump sum cash settlement could render the child ineligible for financial aid. Even if the family intends to use the money to cover the costs of caring for the injured child, college financial aid offices typically consider those funds when offering financial assistance.
Loss of Government Benefits Eligibility: Most states use income and asset tests in determining one’s eligibility for needs-based government benefits (e.g., SSI, Medicaid, CHIP, etc.). If the child or the child’s parents accept a lump-sum cash settlement, the family will almost certainly lose access to important needs-based benefits.
A Better Approach: Proactive Planning
There are a few different options for handling a minor’s settlement that will help avoid many of the negative consequences associated with a lump sum cash payment:
Option 1: Defer Payment Until After College
With private college tuition averaging over $30,000 a year before room and board, a four-year degree can easily top out at over $100,000. By placing settlement proceeds in a structured settlement and arranging to have the first payment deferred until after college, the child may be able to obtain eligibility for financial aid assistance. The deferred payments will be valuable to a young adult regardless of his/her chosen personal or professional path.
Option 2: Utilize a Minor’s Trust
Minors with more extensive medical needs may benefit from a minor’s trust. There are state-specific (and in many jurisdictions, county-specific) guidelines that must be followed to gain court approval. A minor’s trust is managed by a trustee, who is often a close loved one (i.e., a parent, grandparent, or guardian), but in some cases, could be a court-mandated professional or bonded trustee.
If funds for the minor child are not needed immediately, the trust does not necessarily need to distribute payments during the minor’s youth; instead, the trust can be set up to begin distributing funds when the minor reaches the age of majority in his/her state. To determine the most appropriate approach, families will want to consider medical needs, anticipated financial needs (whether there will be a loss of earnings or a large future purchase), and the minor’s ability to handle funds at the age of majority. Structured settlement annuities can be used to fund a minor’s trust, providing an added layer of protection while also maximizing the proceeds. When selecting this option, consideration must be made for the amount of funds going into the trust vs. the bonding and court fees for the time the trust is in existence.
Additional Options for Minors
Depending on the jurisdiction and the discretion of the judge, options for settlement may also include a guardianship account or a court registry account. In an effort to maximize and preserve the settlement proceeds, families are encouraged to explore the possibility of a structured settlement annuity or a combination of a structured settlement and a minor’s trust.
For more information regarding your next case involving a minor, contact Kimberly Overby at Sage Settlement Consulting today. Our experienced settlement consultants will help create a stable financial future for your minor clients.
Volatile Markets are No Match for this Financial Option
Trade wars? Historic tariffs? With uncertainty as to which direction the markets are heading, investors are considering the best strategies to protect their portfolios. Injured claimants are particularly vulnerable, especially those whose quality of life depends on a steady income. Fortunately, there is a solution that offers protection from market volatility while providing a source of stable, long-term income: structured settlements.
Steady Gains, Lasting Peace of Mind
Both the term and the rate of return for a structured settlement annuity are locked in, and payments are guaranteed1, so when the market drops—even in a recession—the structured settlement payments remain unaffected. Structured settlement annuities are issued by highly-rated life insurance companies, making them one of the safest, most attractive financial vehicles available.
With no overhead fees, structured settlement annuities often yield returns competitive with traditional investments. Certain life companies also offer a rider that provides additional growth potential based on the S&P 500—without any market loss.
Claimants who can incur a degree of market-related risk may want to consider combining a structured settlement annuity with a market-based structured settlement program. Such an approach creates a truly balanced settlement solution.
Your Client Needs a Solid Plan
Claimants have a one-time opportunity to structure their settlements. The decision must be made before settlement, and the settlement agreement must include the proper language. Your settlement consultant can walk your client through the various settlement options, helping to establish realistic expectations and to ensure that a proper plan is in place to preserve the settlement proceeds.
You Need a Plan, Too
Many of the nation’s leading attorneys leverage the benefits of structured attorney fees to defer taxes on their contingency fees. As with structured settlements for claimants, attorney fee structures provide guaranteed, fixed income to create a predictable source of income immune to market volatility.
Take Control of Your Financial Future: Contact Us Today
None of us can control the economy, but we can mitigate some of its negative implications. Contact Kimberly Overby today to protect your clients and your practice.
Despite success at the mediation table, settlement proceeds do not always sufficiently provide for an injured claimant’s future medical expenses. After paying attorney’s fees and liens, the typical claimant still needs money to cover medical costs incurred long after litigation ends, such as doctor’s bills, surgeries, medications, home modifications, and more.
Moreover, the Centers for Medicare and Medicaid Services (CMS) projects that from 2018 to 2027 the price of healthcare goods and services will grow at a faster rate than it has historically. CMS also estimates that healthcare spending will increase at an average rate of 5.5% per year during the same time frame.
Rather than leaving your client in a vulnerable financial state, it is best practice to develop a solid plan at the time of settlement. Here are two simple ways your settlement consultant can help protect your client’s long-term medical and financial needs:
#1: Provide Education Regarding Financial Pitfalls
Outside of advising your client against taking a cash lump sum and risking quick depletion, there are additional obstacles that claimants need to avoid, including:
Loss of Needs-Based Government Benefits Eligibility: Claimants who receive needs-based government benefits will likely lose their eligibility for such benefits if they accept a lump sum cash settlement. For example, in most states, assets totaling as little as $2,000 ($3,000 for couples) are considered enough for a claimant to be ineligible for Medicaid (Medi-Cal in California), SSI, and CHIP.
Medicare Non-Compliance: Although Medicare is an entitlement benefit, claimants who receive Medicare benefits have additional responsibilities when it comes to the cost of their future medical care. Medicare Secondary Payer provisions encourage Medicare-eligible claimants to set aside a portion of their settlement proceeds to cover future medical costs, typically in what is referred to as a “Medicare Set-Aside.” While in the past, many in the legal community have paid closer attention to future medical expenses in workers’ compensation cases, an MSA industry leader reported a recent case in which Medicare sought reimbursement for future medicals in a liability settlement.
#2: Offer Strategies for Preserving and Maximizing Settlements Long-Term
Once the potential complications have been identified, several solutions exist that may help your clients provide for their long-term medical and financial needs:
Special Needs Trusts: Disabled claimants under the age of 65 may meet the criteria for a special needs trust (“SNT”; also known as a (d)(4)(a) trust). Settlement proceeds placed in a special needs trust are not considered countable assets when determining eligibility for government benefits. The claimant can continue receiving their needs-based benefits while supplementing their financial needs with approved distributions from the SNT.
Spend-Down: In certain states, “spending down” the settlement proceeds may allow an injured claimant to maintain needs-based benefits, including Medicaid. The spend down method has many stipulations related to the timing of purchases, what constitutes an allowable expense, and whether or not needs-based benefits will be suspended for the month in which the settlement proceeds are received. Claimants who are considering a spend-down should always consult with their caseworker or agency representative before receiving the settlement proceeds.
ABLE Accounts: Individuals who became disabled before the age of 26 may be eligible for an ABLE (Achieving a Better Life Experience) account, a tax-advantaged savings account. Funds held within an ABLE account can be used to cover qualified disability expenses, including healthcare, education, housing and transportation for the disabled individual. While annual and lifetime funding limits for an ABLE account may vary by state, ABLE account funds are exempt from asset tests for needs-based government benefits, provided the total funds in the account do not exceed $100,000.
Professional MSA Administration: While some claimants choose to personally administer their own Medicare Set-Aside accounts, professional administration provides management of future medical funds by experts that can save your client money and help them live worry free. Post settlement, a professional administrator handles all of the claimant’s medical concerns pertaining to pharmacies and doctors, insurers, employers, attorneys, medical providers and Medicare. A professional administrator automatically files all reporting requirements for Medicare Set-Aside accounts to CMS, allowing the claimant to treat freely. CMS “highly recommends” the use of professional administration to make sure the funds are preserved as long as possible through discounts only a professional administrator can provide.
Some administrators also offer subject matter expertise and consultation on federal and state benefits for beneficiaries of worker’s compensation and liability settlements.
Certain programs even offer transparent pricing into the real-time cost of prescriptions and treatment, providing the injured party visibility into the actual pricing of these services.
Contact Sage Settlement Consulting to Learn More
To learn more about these settlement planning solutions, contact Kimberly Overby today. Our experienced team will help you and your client create a customized financial plan to secure a better future.
When making important financial decisions, such as those arising from a lawsuit or settlement, it’s often assumed that a financial advisor can provide the best guidance. While that may be true in certain circumstances, effectively safeguarding a settlement requires the specialized expertise of a Settlement Consultant.
Here are 3 reasons why your client NEEDS a settlement consultant.
Reason #1: Specialized Knowledge
A settlement consultant’s training goes beyond traditional wealth management strategies. It also encompasses experience with providing solutions specific to the financial intricacies of injured claimants and plaintiff attorneys, to include structured settlements and attorney fee deferral products.
In particular, settlement consultants are familiar with roadblocks that can prevent a smooth settlement resolution. From helping prevent the loss of government benefits to knowing whom to consult when a lien report is inaccurate, a settlement consultant has specialized experience needed to provide the most comprehensive level of service during and after settlement negotiations.
Reason #2: Holistic Approach
Not only are an injured claimant’s financial needs unique and different than those of a non-injury victim, but there is also an emotional aspect to settlement planning that a settlement consultant is better equipped to navigate. When someone has experienced a traumatic injury or the death of a loved one, their wrong can never be made right regardless of the amount of money they receive through a settlement. Newfound wealth can often feel like more of a burden than a blessing — especially if the windfall came as a result of a loved one’s death. A settlement consultant is an advocate for the injury victim and can help navigate emotional storms while keeping claimants focused on goals and a well-thought-out plan that provides for financial stability.
Whereas the typical financial client may be focused on investments that can provide for retirement savings or funding extensive vacations, injured claimants must deal with economic complications as a result of an accident, and planning for the costs of their future medical treatment. The cost of prescription drugs, prosthetics and home modifications; eligibility for needs-based government benefits; replacing lost income; and trying to adjust to a new reality are all elements that must be considered in an effective settlement plan.
Settlement consultants work daily with injured claimants and their family members, and they understand how to provide detailed, expert guidance while offering empathy and emotional support.
Reason #3: Team-Based Solutions
Different than the typical solo approach often associated with advice provided by a financial advisor, the best settlement consultants recognize the strengths that other experts offer in the settlement process and will choose the right professional partner to quarterback every component of settlement resolution for the claimant. Reputable settlement consulting firms have access to a broad range of tax, government benefit, lien resolution, estate planning, trust services, and wealth management experts that can help the claimant create a seamless plan for his/her financial future. Moreover, settlement consultants are not captive agents, guaranteeing that they will only consider the best interests of the claimant when recommending products and services.
Contact Kimberly Overby Today
Sage is proud to be the largest plaintiff-oriented settlement planning firm in the nation. With offices from coast to coast and a national network of experts, we have the resources you need to ensure that your clients are receiving the best advice. Contact Kimberly Overby today to learn more.