by Thomas D. Begley, Jr., Esquire, CELA
It is important to decide in each individual case how much of a personal injury recovery should be structured and how much should be lump sum. The instinct of many personal injury attorneys is to structure as much as possible to avoid having a plaintiff squander the funds. A better approach would be as follows:
- Identify immediate needs. A meeting of all interested parties should be held and the first step should be to identify the immediate cash needs of the plaintiff. Does he want to purchase a house, a vehicle, take a trip to Disney World, pay off debt, buy furniture, etc.? How much will all of this cost?
- Set aside an emergency fund
- Determine the amount of the structured settlement
Sophisticated people start the discussion with allocating 50% to a lump sum and 50% to a structure, and then go up or down from there. Financial advisors often consider the structured settlement as the debt portion of the individual’s investment portfolio. In dealing with sophisticated plaintiffs who have developed a financial discipline over their lifetimes or in dealing with a professional trustee, this approach makes sense. However, if the plaintiff is going to receive the money themselves outside of a trust and has not developed financial discipline, then it often makes more sense to structure a higher portion of the settlement.
A structured settlement can be paid into a special needs trust, provided the individual is under age 65 at the time the trust is established and the structure purchased. Payments are made into the trust and do not affect the individual’s public benefits. In New Jersey, the policy of the State Medicaid Agency requires that there be a 100% commutation rider on the death of the beneficiary and that the payee on death be the special needs trust. This is to guarantee that Medicaid receive its payback on the death of the trust beneficiary.