Can I Get A Mulligan?
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Golfing members of my readership will immediately recognize this phrase as something heard all day long on the first hole of any golf course. If you’re not a golfer, you may be familiar with its simpler cousin: the “do-over”. Whichever one you’re familiar with, “Mulligans” and “do-overs” mean the same thing: you want a second chance without paying the usual penalty. In recreational games, friends may readily grant you a Mulligan; real life can be a tougher opponent.
One of the deep satisfactions of our work is having the ability to put seriously injured people on a sound financial footing for life. No matter who was at fault, we are often dealing with someone who has been badly injured, may not be able to work, is in dire financial straits and is terrified that they may never escape them. Not only do we get to establish guaranteed payments for the rest of this person’s life, we get to (metaphorically) “wave the magic tax wand” over their future payments, and make them tax-free forever. Can’t help it folks; I flat love doing this every time out.
But the tax folks say you only get one bite at the apple; pass it up and there are no “Mulligans”. Recently I had the sad task of telling a former plaintiff that, no matter how much she wanted it, I could not grant her a “Mulligan” on her recent choice to take all cash rather than a structured settlement.
“Jacqueline Nardo” (not her real name) was born July 13, 1923 and had been injured in an auto accident in February of 2004. Her claim came to settlement discussions in August of 2006 and that’s where we first met. Throughout the negotiations, we meticulously illustrated what each amount could buy, going through the plans in detail with both her and her attorney.
Some people might reflexively think that a structured settlement would be of little interest to an 83-year-old woman, but that would be an erroneous presumption in many cases. In this one, Ms. Nardo expressed keen interest in a guaranteed income to help her with the monthly bills and to establish education funds for her grand- and great grandchildren. Negotiations proceeded productively and the case ultimately settled. However, just as we were preparing to finalize the structure plan, we were abruptly informed that Ms. Nardo had decided to take all cash. Everyone shook hands and that was the last I had expected to hear of Jacqueline Nardo… or so I thought.
Then one bright sunny morning this past May, I received a call directly from Ms. Nardo. She was troubled and wondered if I could help her out. I told her I would do my best and inquired as to her dilemma. She went on to explain that while she understood the benefits of a structured settlement and had indeed wanted to structure at least a portion of her settlement, her own attorney had advised her against it saying that she “had a friend” who could invest the money at a “far greater return.” Ms. Nardo trusted her lawyer and felt she had better take her advice, so they signed the general release and Ms. Nardo received her check.
Then she met with her lawyer’s “friend”. At first everything seemed fine, as the investment counselor explained everything to her and spoke with her at length. Now, several of the investments were not performing as expected and the investment advisor was not returning her calls. Ms. Nardo was concerned and upset. She said that turning down the structure had been a mistake and that she now wanted to take her money out of the investments and put it back into that structured settlement package I had presented her with last summer (Oh, for a “Tax Mulligan”!).
I sadly had to explain to Ms. Nardo that it was too late. While the tax code does indeed permit payments for life free from tax, it has to be established before she actually received the funds. The moment Ms. Nardo signed that general release and picked up that check, she was in receipt of the proceeds and had waived her ability to structure the settlement. Congress offers injured people the Section 104 income tax exclusion once and only once; if they pass on that chance, there are no “do-overs” or “Mulligans”.
Ms. Nardo understood she had made a critical mistake in not choosing the structure when she had the chance and accepted there was now nothing she could do about it. She thanked me for my time and said she would just have to live with her decision. She was a very nice lady and it killed me to send an 83-year-old off empty-handed. This could have been my own mother, the mother of a friend, or one of countless aging Aunts in our family. I wished her well and decided to vent about the rotten advice she had received in this forum.
None of this would have happened if Ms. Nardo had been given accurate information. No matter how good her investment counselor may have been, she simply could not compete with the net return that Congress’ tax break creates – or at least not without taking added risk.
The tax benefits provided under IRC 104(a) (2) truly come around only once for injured claimants (and thankfully never for the rest of us). As such, they should never be dismissed lightly. Otherwise, claimants risk ending up like poor Ms. Nardo: taking higher risks than necessary and paying taxes she never needed to pay.
With an increasingly aging population, don’t dismiss the benefits of structures for the older generation. Females especially worry about outliving their income and both men and women often wish to leave an educational legacy for beloved grand- and great grandchildren. Lastly, don’t be too quick to believe that someone’s “friend” can do better; it didn’t work out that way for Ms. Nardo and isn’t likely to for others either.
Call Frank C. Kilcoyne CSSC at 800-544-5533. I am here to help.
