If you are ignoring structured settlements, or dismissing them without exploring your client's needs, and the reasons are (but not limited to) "the case isn't big enough and it's too much work", " I've got them a great number and I just want to get paid", misperceptions about where interest rates are going, or you (or the client) are seduced by potential investment returns in the stock or bond markets without a clear understanding of the impact of volatility (1) on your client's defined and undefined needs/outflows (that you have used in obtaining their recovery), you are making a fiduciary decision that could be very costly to you and your clients.

Some lawyers do not want to get involved in the settlement planning process because they feel that they are not trained in this area. However, it has been shown in a number of court cases that plaintiff lawyers may be held accountable to their clients for not presenting a structured settlement offer as part of the overall settlement. Plaintiffs' lawyers can mitigate this exposure by consulting and retaining their own skilled structured settlement expert to guide them through the process. Consider the following two cases:

Christina Grillo, a Texas plaintiff in a personal injury case which was settled in 1991, sued her attorneys and the guardian ad litem for legal malpractice. Among the allegations was that Defendants "failed to employ or consult with competent, correctly informed experts before final constructive receipt precluded creating a qualified structured annuity for Plaintiff". Additional allegations included the failure to establish or preserve SSI and Medicaid eligibility. The case against the attorneys concluded on March 23, 2001 (the case against the ad litem was settled separately. But the cost as to all Defendants was for a combined $4.1 million! (2)

In the New York matter of Lyons v MMIA, the plaintiff sued the defendants and their representatives for negligent misrepresentation on the cost of a structure, and the resulting influence on the decision to settle. He also sued his attorneys for legal malpractice on this case, which was settled in 1987. The Supreme Court of the State of New York initially granted summary judgment in favor of the Defendants on July 13, 2000. However the Appellate Division 2nd Dept. reversed this on September 17, 2001. The plaintiff's lawyers could've saved themselves a great deal of headache and money by retaining their own broker (3)

The attorney, who fails to discuss a structure, forever loses his or her client's opportunity to participate in one of the most significant tax breaks available. The advent of variable payout tax-free structured settlements magnifies the tax break. The tax savings when structuring either taxable or non-taxable periodic payments can result in a sizeable difference.

For those clients that have investment experience, a traditional structured settlement can be integrated with a tax-free variable payout structured settlement and/or a companion investment portfolio. Most financial planners and journalists would agree that a diversified portfolio includes conservative investments such as traditional structured settlements. The "tax-free" payouts produce higher returns than comparable investments with taxable earnings. If one has the risk tolerance to invest in stocks, then variable payout structured settlements are excellent options. Alternatively, periodic payments provide an ideal source for "dollar cost averaging", a strategy of investing the same amount of money each month or quarter that lowers the per-share cost over time.

Life expectancies are increasing at a rate close to one percent a year, making a person with a 20 year life expectancy at retirement actually live about 50% longer than the expectancy table says. (4)

Could your client outlive their settlement? Not if it is in a structured settlement. If the injury is permanent, the settlement should be too!

Structures provide the highest after-tax return with low risk in today's interest rate climate with no money management fees.

A structured settlement really is sound financial planning offering guaranteed, dependable payments, which can help ensure that settlement money is not squandered, swindled or lost. A 1992 study by the Rutter Group (5) showed that 90% of all settlements are dissipated within 5 years. Protect your client and protect yourself and your firm!

Notes

1. See Monte Carlo Analysis and Simulation

2.Grillo v Pettiete et al. Cause No.96-145090-92 and Grillo v Henry Cause 96-167943-96, 96th District Court, Tarrant County, TX

3. 730 N.Y.S.2d 345

4. The Other Side of Retirement Planning, Michael Stein, CFP

5. The Rutter Group, Ltd., from Flavahan, Rea, Kelly & Tener, California Practice Guide: Personal Injury (TRG 1992) Chapter 4