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The Attractiveness of Structured Settlements

Are structures still as attractive as they once were? With the economy in turmoil, wouldn’t it just be better for the plaintiff to take cash and stuff their mattress with it? I recently spoke with an attorney who seemed surprised anyone was even talking about structures anymore; he seemed hesitant to put money anywhere. While I can understand the sentiment, he was way off base: people are not only still talking about structured settlements, they’re asking us to put plans together for them every day. So do structures still help? Yes indeedy. And to whom are they most attractive? Let’s take a look…

Structured settlements have always offered a unique blend of attributes, any one of which becomes more or less attractive to a particular claimant depending on their circumstance. Healthy claimants might value the tax-free aspects of a structure while trustees overseeing a catastrophically injured person’s affairs may value the ability to lay off mortality risk on a life insurer through medical underwriting. Parents like the idea of guaranteed funding for their child’s education while those approaching retirement are thrilled by the idea of a guaranteed lifetime monthly income. Remarkably, for many the tax-free aspect of structures is simply icing on the cake, not even the primary benefit.

Broader economic conditions surely affect how claimants value their one-time Section 104 tax benefit. Back in the 1980s when inflation was running rampant and interest rates were sky-high, everything was “yield, yield, yield”. Today, with everyone feeling a bit queasy over the economy, many of the people who value structures the most are those now wondering how they are going to generate income to live on when they’re old. People seem stunned to suddenly realize that only government workers and a very few corporate employees still have a good old-fashioned defined benefit “pension” to look forward to. The remaining masses, frankly, don’t know what they’re going to do.

An Ipsos poll of 1,082 adults age 25 and older 1 found that:

• 71 percent say they were personally in control of their finances and make financial decisions themselves, yet 48 percent of them say they will not have enough money to maintain their current lifestyle in retirement.

• Approximately 50 percent say they have balances in their 401(k)s of less than $5,000.

• Of those retired, fifty-three percent say they are concerned about their current financial situation.

• Of those not yet retired, 40 percent say they believe they will outlive their retirement savings. Of those over 50, nearly half say they have saved essentially “nothing”.

• When asked if they wish they had a pension, fully half answer “yes” - even among those aged 25-34. This was surprising considering how far removed this younger generation is from the days of defined benefit pension plans.

We are seeing an amazing upsurge in the value people place on a guaranteed lifetime income for retirement. With such a financial need so clearly identified it would seem a no brainer to fill it. And it is.

Consider the case of “Susan Harris” a 50-year-old woman I made up for the sake of example. Susan and her husband Dennis are both high school graduates who married and raised two sons now in their 20’s. From the years 2002 through 2007 Susan earned an average of $ 32,900 per year. Like many people of her generation, running a household and raising a family left little for investment but she dutifully and diligently contributed something to her 401(k) every month. Unfortunately, it was nowhere near enough and market returns have been far below expectation.

Now Susan finds herself in the position of settling a claim for injuries received at the hands of another. Think she’s a candidate for a structured settlement? Remember Four out of ten respondents who are not yet retired say they believe they will outlive their retirement savings. A large portion of 50-somethings say they have practically nothing saved for retirement. A structured settlement funded with $210,544 can provide Susan with $ 3,000 per month guaranteed for 10 years certain and life thereafter whichever is longer with payments beginning on Susan’s 65th birthday. No matter what else happens during retirement, Susan has ensured that she will never be more than 30 days from another $3,000. This plan guarantees that Susan or her estate will receive at least $360,000 over ten years and she could expect to receive in excess of $617,000 over her statistical lifetime. And remember, the full payment is available to meet expenses: ZERO deductions have been levied for federal, state or local income taxes. Still wonder if structures help? For people like Susan and many others they have been a lifesaver.

You can’t allow the stress of the times to fog people’s vision. While most of us face tough financial choices, personal injury claimants have a stunning opportunity to establish the kind of long-term financial security the rest of us can only dream about.

Wake them up to their own favorable reality! Inform them that they qualify for a Section 104 structured settlement.

Have a case involving someone aged 30 to 55? Want to show them a settlement plan that provides them with a comfortable retirement, guaranteed? Call Frank C. Kilcoyne CSSC at 800-544-5533 I am here to help.

1Itsos Public Affairs , “Half of Americans Wish They Had a Pension” , http://www.ipsos-na.com/news-polls/pressrelease.aspx?id=4886, 8/04/10