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A Good Plan

Designing good periodic payment plans can be complex or simple. Sometimes we must carefully weave intricate elements together to match specific and identifiable needs; other times we just do what makes sense. Experience helps too. Oftentimes we simply rely on what has worked before. Those of you who have settled infant cases with me know that we will commonly propose one fairly large lump sum payment at age 30 for a “down payment on a house”.

Our logic here is that these days it is nearly impossible for young people to save enough money to put up a sizable down payment, even if they earn enough to cover reasonable mortgage payments. Settlement represents a rare (and perhaps the only) time when capital becomes available to them and may be dedicated specifically for such a purpose. According to a recent Washington Post article, it seems we have been on the right track.

On April 9th the Post published “Down payment proposal could make a mountain out of a mortgage” by Dina ElBoghdady and Zachary Goldfarb. The article makes the point that over the past decade houses became so expensive and lending rules so lax that few people had to put up much money at all when taking out a mortgage.

But those days may be coming to an abrupt halt. In an effort to avoid a repeat of the foreclosure crisis, regulators have proposed rules that would effectively prevent banks from offering mortgages to borrowers who put down less than 20 percent. Banks say these regulations would result in their having to charge much higher interest rates and fees to borrowers who can’t produce the required 20 percent. Some banks may simply discontinue the practice of offering low-money-down mortgages altogether.

In their article, the writers cite the example of Julia Ziegler, a 29-year-old social media specialist looking to buy a $250,000 condominium. Ms. Ziegler had planned to purchase the condo by making a 10 percent down payment. She said “Coming up with $25,000 plus closing costs is tough, and I am buying in the lower end of the market. If I had to put down 20 percent, if I needed $50,000, forget it. I would have to save for a long, long time.” A long time indeed.

I have long believed that designing settlement proposals just slightly more attractive than their cash alternatives helps resolve cases sooner, easier and more efficiently. And what is the best way to make a case more attractive? Design a settlement plan that actually means something to somebody. Consider a recent case involving a 14-year-old female whose injuries resulted in the following settlement offer:

                                                                     Guaranteed Payout          Cost

Education fund of $20,000
per year guaranteed for
four years beginning at age 18.

                                                                      $ 80,000                            $ 70,440

Guaranteed payment of
$ 25,000 at age 25 to help
get started in post-
college life.

                                                                       $ 25,000                            $ 16,228

Guaranteed payment of
$ 50,000 at age 30 for
down payment on a house.

              

                                                                       $ 50,000                             $ 25,205

                                                             Total $ 155,000                           $ 111,873

Those of you who have worked infant cases with us have seen this plan many times; we use it because it works. Just ask Ms. Ziegler. Would she like to know she has a guaranteed tax-free payment of $50,000 arriving right about the time she might be starting a young family and juggling kids with career? You bet she would. An increase in down payment requirements on the scale being discussed now in the banking industry could mean the difference in buying that first house or renting for a long time.

The other attractive features of this plan are obvious. In nearly every infant case we will propose an education fund because level of education has been one of the most consistent markers of higher lifetime earnings. We add a bump at age 25 as an intermediate lift to give them freedom to relocate in pursuit of career opportunities or to pay off accumulated debts.

Children aren’t supposed to be injured; there is simply something wrong whenever something terrible happens to a child. However, the principal of flipping this negative into a proven lifetime positive is brilliant. Even if parents don’t favor the education funds or a payment at age 25, creating a future down payment for their child’s first house by way of a guaranteed, tax free structured settlement is a no-brainer. At the very least they can be sure that the kids won’t come to them for a loan!

Have a case where the claimant could benefit from A Good Plan?
Call Frank C. Kilcoyne, CSSC at 800-544-5533, I am here to help.