The damages recovered in personal injury lawsuits are often distributed to injured plaintiffs using structured settlements. If the injured plaintiff is a person with special needs, some special planning may be necessary to assure that the settlement is flexible enough to meet the needs the injured person may encounter in the future. Attorney Andrew Hook explains structured settlements and how a special needs attorney can help with the planning process in this report.
Hook explains that a structured settlement is an annuity that receives special tax treatment under the Internal Revenue Code. Where the entire settlement is paid into the annuity, the payments received are tax-free. Structured settlements are tools used in personal injury settlements to help assure that the settlement proceeds are not rapidly dissipated. Studies show, Hook says, that about 80% of people who receive sudden wealth will dissipate it within five years. People with permanent injuries could find themselves with no money to pay for needed care on a long-term basis. The structured settlement also provides professional management of the proceeds.
The difficulty with a structured settlement, Hook says, is inflexibility. Once the annuity is purchased, there is a set amount that will be paid out on a set schedule. The problem for persons with special needs is that they sometimes need liquidity. Current bills in a given month may exceed the amount of the scheduled payment. This is why it is important to have a special needs lawyer sit down with the plaintiff’s lawyer and the structured settlement broker to determine how much of a particular settlement should be put into the structure and how much should be retained in cash or in readily salable investments so as to provide the liquidity that might be needed to buy a house or a car, for example.
Hook explains that a special needs trust is a means of managing the assets of a person with special needs who is reliant on public programs such as Medicaid and SSI. Those programs apply a means test to determine eligibility for benefits. A special needs trust can keep some assets available for persons with special needs and avoid disqualification for benefits under the needs tests. Hook says that the solution is to have the structured settlement benefits paid to the trust rather than to the individual. This avoids the disqualification problem.
Hook points out that the payout options for a structured settlement annuity are very flexible. “You can have a level monthly amount, you can have level monthly amounts that increase with inflation,” and a number of other options designed to provide the injured person with money when it is needed and in amounts that will be sufficient. The key point is that, once the agreement has been negotiated and executed, it can’t be changed. It is important to have a knowledgeable special needs attorney involved in the working out of the settlement.
Andrew H. Hook is the president of Hook Law Center, where he practices in the areas of elder law, estate and trust administration, estate, tax, retirement and financial planning, long-term care planning, asset protection planning, special needs planning, business succession planning, and personal injury settlement consulting. Mr. Hook is a former President of the Special Needs Alliance, a nationwide network of disability attorneys. The Legal Broadcast Network is a featured network of Sequence Media Group.