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What An Informed Claimant Does After Settlement

 

In last month’s edition I mentioned how easily many claimants fall victim to obvious risks easily avoided by people experienced in the field. Having said that, you might have wondered what a “well-informed” claimant would do once their case has settled.

First and foremost they would keep quiet. Whether the settlement is large or small, the first order of business is to remember that a person’s money – from whatever source – is no one else’s business. Once word gets out about a settlement, the expectations and behaviors of friends and family can change markedly.

Next, they would go easy on the houses and cars. These items seem to have an accelerated gravitational pull on settling claimants. Ordinarily, big ticket items like this are considered a large investment and people give their purchase a lot of thought. But for some reason with settlement money, certain people will abandon reason and grossly overspend. They look only at the total price of the house without thinking about what it will cost to furnish, heat and maintain. Roofs leak, air conditioners quit, the grass won’t stop growing and even the state wants a piece of them. Some claimants don’t even think about this: it is not uncommon to see one buy so much house, they have no money left over to pay the taxes.

It’s better to prepare for this irrational spending urge and take proactive steps to deal with it. I favor a “judo” approach: rather than trying to resist temptation directly, I recommend they yield to the urge but I guide it in a safe direction. I recommend building a (reasonable) “spending spree” right into their settlement plan: pay off all credit cards and take a nice vacation, then they need to consider how much of the rest of their settlement proceeds to spend versus what to save.

Right here and right now they need to remember not to blow their money on things they don't need other than that little spending spree. Here is when they need to contemplate the really big question: how much of the remaining settlement proceeds to spend immediately versus how much to keep in a safe place? I recommend they draw up a list of future “big ticket” items: the mortgage, any known medical expenses, educational funds for their kids, perhaps retirement income, write a dollar number next to each item on the list, and then total them all up. This might be the first time that their settlement doesn’t seem so big after all. This is a critical exercise: they really do need to step back and balance out short-term spending urges to long-term legitimate needs and goals.

Informed claimants would also exercise a healthy skepticism about “can’t miss” investments. Few members of the general public have any direct experience with investing money because up until the accident, they never had any spare money to invest. But after settlement, they will be approached by people promoting all kinds wonderful investment “opportunities.”

These entreaties always sounds so simple - “Join the people who are earning astonishing returns simply by…” Earning “astonishing returns” is never simple. Invest in what and with whom? It is difficult - nay, impossible - to know who to trust. Weighing risk versus return, relative to taxes, fees and expenses is not easy for experts; what chance does a rookie really have?

Personally, I don’t believe settlement funds should be treated like venture capital. It’s not. In most cases, the claimant literally BLED to “earn” the money. More importantly, this sum is the only money they will ever get for their injury and it should not be put at risk in the investment markets. Scan the financial news any day: for every investment which doubled a person’s money, you can read about another which vaporized the entire sum.

For critically needed funds, claimants should only consider the safest investment vehicles, such as highly rated bonds, time deposits, certificates of deposit or money market funds. And when doing so, they should remember that the government only insures bank accounts up to $250,000, which means they shouldn't have more than that amount in any one bank if they want to be safe.

Taxes are another subject which an informed claimant would take into consideration. Most claimants fail to appreciate the enormous impact taxes can have on various investments. But how many ordinary claimants know that taxes on future income can be avoided completely with proper planning? Well, that is my profession: I help claimants plan securely and avoid income taxes completely.

In sum, what would an informed claimant do once they have settled a personal injury claim? They would keep a low profile, try not to be too flashy (cancel that new Porsche), keep old friends close, and not let money be the main topic of discussion between themselves and any friends. They would treat their own family well but recognize that they are under no obligation to relieve any other family’s financial problems.

What would a full time claims resolution professional do if they were settling their own case? Most would create a guaranteed stream of non-taxable income for themselves which generates payments that increase over time and last as long as they live, and which also continue – tax-free – to their families in the event of an early death.

In other words, they would request a bona fide “structured settlement”. And many call me: Frank C. Kilcoyne, CSSC to discuss the possibilities. Dial 800.544.5533; I am here to help.