Beneficiaries and their families often have high expectations concerning personal injury settlements. Edward V. Wilcenski, Esq., of Wilcenski & Pleat, provides information about the settlement process which will help families set realistic expectations about the use of settlement funds.
Personal injury settlements are often preceded by years of litigation. As a case approaches its conclusion, there’s usually a sudden rush of activity, as families are pressed to meet deadlines set by attorneys, insurance companies, courts and other professionals. On the one hand, families are relieved to be at the end of a long and difficult road, but on the other, they’re often asked to make some very important, long-term life decisions in a short period of time. One of the first things that special needs planning attorneys try to do is slow the pace and help the families understand their choices.
As a preliminary matter, it is important for families to understand that when a lawsuit settles, there may be certain obligations that need to be paid before funds are available to the plaintiff. If private health insurance, Medicaid or Medicare have previously paid costs associated with the plaintiff’s injury, those entities will typically have “liens” which will need to be repaid from the proceeds of settlement before funds are available to the plaintiff.
Once all liens and litigation expenses have been identified and paid, the plaintiff is left with the “net settlement” amount. The question then becomes whether the plaintiff should receive the net settlement in a lump sum, or whether some part of the net settlement should be “structured.” With a structured settlement, a portion of the net settlement is paid to an insurance company in exchange for fixed and ongoing income payments in the future. Those income payments can be made in monthly installments, annual installments or some other combination based on the plaintiff’s expected needs.
The primary benefit of structuring a portion of a settlement is that these future payments are guaranteed, regardless of what may happen with the stock market or interest rates in the future. The downside of a structure is that the plaintiff must forego liquidity in exchange for the guaranteed income stream. Once a payment schedule is established, it becomes permanent, meaning that the plaintiff will not have access to the underlying value of the structure if there are large and unanticipated expenses in the future. As a result, with larger settlements, it is often beneficial for a plaintiff to take a portion of the settlement in a lump sum and use a portion of the settlement to purchase a structure.
Regardless of how a settlement is paid, rarely will settlement proceeds be sufficient to allow a plaintiff with a permanent disability to support herself for the rest of her life. In almost all cases, the plaintiff will need the ongoing support of various means-tested government benefit programs, including Supplemental Security Income (SSI) and Medicaid. These programs establish a “floor” of support. If settlement proceeds (taken as a lump sum, a structured settlement or some combination) are placed in a properly drafted supplemental (special) needs trust (SNT), they will not impact the plaintiff’s eligibility for ongoing support from government funded programs. The trustee of the SNT will then be able to use the settlement to pay for other goods and services to enhance the life of the plaintiff with the disability.
There are many other important decisions that a family must make during the settlement process, including the selection of a qualified trustee and the identification of significant expenditures like housing and transportation which may need to be made in short order. Given the importance of these decisions, a plaintiff and her family are best served when the personal injury attorney, the special needs planning attorney and the structured settlement professional work together to develop a tailored solution.
Edward V. Wilcenski, Esq., practices in the areas of special needs planning, litigation settlement consulting, trust and estate administration, elder law and long-term care planning. His firm, Wilcenski & Pleat PLLC, has offices in Clifton Park and Glens Falls, New York. He is a past president of the Special Needs Alliance, and works extensively with litigation attorneys, structured settlement professionals, corporate trustees and families who are negotiating the settlement process. The Settlement Channel is a featured network of Sequence Media Group.
