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Fear of terrorism, corporate fraud, and the economic downturn have created today’s financial turmoil. For the plaintiff with a large tort settlement, the stakes could not be higher. Small wonder that use of tax-free structured settlements has surged more than 50 percent since 1999. Backed by Treasury obligations or lire company annuities, structured settlements are among the safest funding sources for your client.
Equally important, however, is the growing realization among plaintiff attorneys that structured settlements are an excellent way to resolve cases without trial. That’s why the savvy trial lawyer needs to know how to incorporate a structure during negotiations.
First, some context: An injury victim rarely invests the entire settlement in a structure. After settlement, the plaintiff usually needs cash for expenses incurred during the lawsuit, as well as immediate needs such as making a home wheelchair-accessible.
Much also depends on the client’s long-term situation. A minor in a catastrophic injury case needs far greater protection than an elderly, financially secure survivor bringing a claim for a spouse’s wrongful death. Although both cases might settle for more than $1 million, a minor with an uncertain life span benefits from the security of the structured settlement, which guarantees a lifetime of care.
A structured settlement consultant working with a life-care planner and an economist can assist the trial lawyer in protecting the client’s future needs–known and unknown. A good consultant will consider your client’s long-term medical and living expenses, as well as dependents’ needs (for example, a child’s college education) and produce a comprehensive financial plan.
Knowing the annuity cost is crucial, because it will indicate the minimum total settlement required to fulfill your client’s needs, your expenses, and your fee.
From the initial determination of needs, your team can calculate the amount of money and time needed. For example, you can build in occasional lump-sum payments to fund, say, college tuition, or a specially equipped van. You can also build in annual increases to account for inflation.
Your client also has the freedom to defer payments until a later date. In a case involving a seriously injured minor, for example, the family might elect to wait until the child turns 18 for the payments to begin.
Clients sometimes have a preconceived dollar figure that does not always reflect the lawyer’s valuation of the case, but a structured settlement can provide closure that is otherwise unavailable. For example, in one case a grieving mother whose daughter had died was making no progress toward resolution during mediation. Why was the mother so intractable? She was never going to adroit that her daughter’s life was worth less than $1 million. With the final payment far in the future, the settlement’s structure allowed her to see the amount offered by the defendants as sufficient.
Remember also that under federal law, structure payments are not taxed. A $1 million structured settlement investment will produce a totally tax-free return for your client. A similar taxable investment must overcome the tax rate on the return before equaling the structured investment.
“Joint life” and “life with period certain” options provide comfort along with security. “Joint life” is ideal for couples, because payments continue until both named people die. This permits the plan to focus primarily on the needs of the injured spouse, with a financial hedge that would benefit the surviving spouse in the event of the injured spouse’s early death. Many an emotional crisis has been avoided by meeting the needs of a precarious life while protecting the uninjured spouse.
A “life with period certain” plan guarantees your client lifetime payments, with a minimum number of payments guaranteed even if the injured client dies early. A death that occurs before all the guaranteed payments are made does not end the payments: All the remaining ones will be paid to the estate or beneficiary. This can help guarantee that your client or his or her heirs never receive less than the amount paid into the structured settlement.
You will also need to determine your client’s eligibility for a “rated age.” “To obtain a rated age, you submit medical information such as hospital discharge summaries or physician records to various companies that provide annuities. These companies often inform you that your client’s life expectancy is shorter than the average. This is always true for a catastrophically injured client, but it is often true for reasons not associated with injury. For example, a claimant suing because of an injury in a car wreck might receive a high rated age because he has cancer.
A rated age is crucial if a structured settlement’s benefits are based on life expectancy–as distinguished from a definite stream of payments or a single payment to be made in the future. A reduced life expectancy results in a higher rated age. Therefore, if your client’s life expectancy is reduced, the amount of life-contingent payments–that is, payments that are contingent on the continued life of your client–will increase for the same premium.
When negotiations begin, even the presence of a structured settlement consultant with the defense team may be revealing. Since these consultants typically expect to be paid only if a structure is used, a consultant’s appearance could be a tip that the defense is serious about settling the case.
After more than 35 years of representing injured people and their survivors, I have seen too many &pressing incidents involving these victims. The only thing sadder than a tort victim denied fair compensation is one who receives an amount that should provide care for the rest of his or her life but who loses it to bad investments or unscrupulous “friends.”
While structured settlements are not appropriate in every case, I believe we have at least a moral obligation requiring that we do more than simply hand our clients a large settlement check and wish them well. The standard of care required of us in many cases today mandates a consideration of the potential benefits afforded by a structured settlement.
Written by: Thomas William Malone practices law in Atlanta.

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