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The Best Things in Life are “Filthy, Dirty, Hunks…

… of gold, gold, gold!”   Well, not really, but fans of the 1969 movie classic “Paint Your Wagon” will remember actors Lee Marvin and Clint Eastwood dancing and drinking to this refrain in their own filthy, dirty gold mine. In uncertain financial times, a lot of other people apparently also “can’t get enough of the yellow stuff”.

A few years ago, as our economy staggered down into the Great Recession, you may have noticed the drumbeat booming louder and louder on cable television channels that gold was apparently the ONLY asset to hold in troubled times. These obnoxious ads became so numerous that you couldn’t seem to surf away from them. Lately, you don’t see them so much. How come?

I did some research. It turns out that gold was not the safe haven those folks told us it would be. Gold prices did hit a high in August of 2011 but has fallen sharply since then. As I write, the price of gold has now fallen four months in a row, dropping a whopping 7% in the month of May alone.(1) And the press has not failed to notice: “Gold's fall has prompted some investors to question its 'safe haven' status” wrote Liam Pleven in a recent Wall Street Journal article.(2)

What does this all mean from a settlement planning perspective? If you had received a claim settlement of $100,000 in August of last year and let those quasi-celebrity tv folks persuade you to buy gold, as of two weeks ago, your gleaming stack of ingots would now be worth just $80,000. As one remarkably candid manager of a gold-based investment fund himself put it: "Gold has been behaving more like a risk asset than a safe haven."(3)

Compare that outcome to what you would have experienced if you had structured your settlement using a simple 20-year bond design:

     − You would already have received your first tax-free guaranteed payment of $1,693;
     − You would have 39 more semi-annual payments to go over after that;
     − Your full $100,000 principal would be returned to you in August of 2031.

A guaranteed, tax-free return to you of $167,725 for your $100,000 settlement. Not too shabby, and in these uncertain times downright appealing to many, many claimants.

These days, no matter where you look for a safe place to invest, it seems you find risk. Not too long ago, we all thought real estate was the place to be because “they aren’t making any more of it!” Well, someone must have discovered a new continent or something because in the last five years the average price of a home in the U.S. dropped from $194,000 to $146,000. According to Les Christie of CNN Money, of the homes that did sell during the first three months of this year, more than one in four were in some stage of foreclosure.(4)

If gold and real estate have now been scratched off your “safe haven” list, then what about United States Treasury obligations? “The experts” now tell us that this is the only real safe haven for your money. Well, thanks for the advice - but “no duh.” Treasury bonds have always been an authentic “safe” bet if return of principal was your primary concern. But be careful if your intent is to take cash then buy Treasurys: selling prior to maturity can expose you to interest rate risk and potentially sharp capital losses, something “the experts” don’t always mention.

So what else is secure? Properly diversified annuity-funded structured settlements, that’s what. And it’s good to remember one key difference between a Section 104-qualified structured settlement and a cash settlement invested in US Treasury bonds: the income from the structure is not taxable but the income from such a Treasury bond investment would be.

Compare the two side by side. If you commit $100,000 to a 25-year U.S. Treasury bond and a structured settlement designed to match that same payout pattern (25 annual interest payments with a return of principle at the end), you would currently receive the following:
                                                                Annual Income     Current Yield      SS Better By
Structured Settlement                             $ 3,251                     3.25%

US Treasury Bond
Net of 25% tax                                           $ 2,438                     2.43%                 33.33%
Net of 28% tax                                           $ 2,340                     2.34%                 38.93%
Net of 33% tax                                           $ 2,167                     2.16%                 50.02%

Injured claimants can protect and preserve their settlements via either of these methods, they just have to consider which one best suits their needs. Given the extraordinary tax break available through a bona fide Section 104-qualified structured settlement, it sure seems hard to me to justify taking only cash.

As I remind all of my claimants: this is likely the biggest personal tax break in the entire tax code but you have to get hurt to qualify for one. If you have already suffered the injury; why not claim the amazing benefit that comes with it?

How can you negotiate settlement of a personal injury claim in these uncertain times? By showing them a settlement vehicle which is tried and true. And if you need help in that discussion, call Frank C. Kilcoyne CSSC at 800-544-5533. I am here to help.

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(1) Per weekly data from the U.S. Commodity Futures Trading Commission
(2) Liam Plevin, “Investors in Gold Rush for the Exits”, The Wall Street Journal, Page C1, May 30, 2012
(3) Joe Foster, Van Eck Global International Investors Gold Fund, as quoted in above article

(4) “Home Sales Surge in April,” Les Christie, CNN Money, accessed June 18, 2012, http://money.cnn.com/2012/05/22/real_estate/home-sales/index.htm?iid=EL&source=yahoo_hosted