By Anthony F. Prieto, Jr., CFP® & Jason D. Lazarus, J.D., LL.M., MSCC, CSCC
In today’s extremely low interest rate environment it is hard know the best financial option for an injury victim client. It is important to investigate all of the different financial options that are available to an injury victim client. Many attorneys rely on the advice of a financial advisor or structured settlement brokers to act as experts and assist their clients when a case settles. Many of these advisors and planners are extremely qualified to help and provide advice, but not everyone understands or offers all of the possible options.
Here are two questions you should ask on every case before any financial decisions are made:
- What are the financial options available to my client that will protect their assets and increase their returns as safely as possible?
- How will this settlement impact my client’s public benefits?
The answers to these two questions are interrelated and are addressed by examining the different options available at settlement. There are several key financial decisions an injury victim client must make when a case settles which includes consideration of the following primary options:
A. Lump Sum: The injury victim can take the settlement in the form of a lump sum of cash. This will not protect their recovery. Currently, the assets in a cash account are earning next to zero interest. Taking a settlement in a lump sum greatly increases the chances of the settlement being completely dissipated very rapidly. Taking a lump sum will immediately eliminate eligibility for needs based public benefits program (Medicaid & SSI).
B. Structured Settlement: The injury victim can utilize a traditional structured settlement annuity to provide a periodic tax-free payment stream. This will protect the recovery from rapid dissipation and most creditor claims. However, current structure rates on anything that is 15 years or less is about 1.5%. If a structured settlement is utilized, the injury victim client would be locking in their funds at extremely low interest rates for an extended term. In addition, structured settlements don’t offer any flexibility if circumstances change and there is a need for a change in payments or a lump sum. A structured settlement alone, without a special needs trust, will most likely destroy an injury victim’s eligibility for needs based public benefits programs.
C. Settlement Trust: The injury victim can utilize a settlement trust to help protect their recovery. A trust can also be utilized to help maintain needs based public benefits. The trust corpus is typically invested in a common trust fund that is subject to market risk. In addition, a trust may invest a 20 year old and 60 year old in the same portfolio. There are usually no personalized investment options.
At Synergy, we feel the best solution is a combination of the foregoing options. Our proprietary SAM Trust is a great product that any planner can utilize for an injury victim client. It combines a fixed income annuity portfolio with a traditional structured settlement and cash reserve to provide superior income streams with flexibility. Our SAM Trust has a corporate trustee with vast experience working with personal injury settlements. Synergy has a nationwide network of experienced attorneys that will draft the correct type of trust for injury victim clients at a set fee.
Our Settlement Asset Management trust offers similar guarantees to a structured settlement with very competitive interest rates using our Enhanced Structured Income (ESI™) program. The ESI fixed interest rates are typically 2 to 3% higher than other equivalent products. These fixed interest rates allow the trust to pay a guaranteed monthly income to an injury victim client (similar to structured settlements). In most of our cases, we do utilize traditional structured settlements to create tax free lifetime income paired with the high yield ESI income streams.
The trust has a reserve that acts as an emergency fund providing liquidity and flexibility. The net trust deposit is split into three categories:
- Major first year expenses
- Reserve Fund (for emergencies and liquidity/flexibility)
- ESI™ Payment Streams and/or structured settlement lifetime payments
This allocation creates a guaranteed payment stream and access to funds inside a trust for major first year purchases (house, car, etc.) plus a reserve fund. The reserve fund is a blend of cash and conservative investments that are personalized to the injury victim client.
If you don’t currently work with Synergy and have not investigated the SAM Trust, you should consider asking the professional you work with to contact us. You can also choose to employ Synergy directly to assist your client. If you are not considering the SAM Trust, you may not be properly protecting your clients or yourself.
Synergy has in excess of 50 years of combined legal and financial experience. We are experts in the field of settlement planning. Our principals are Attorneys, CFPs and MBAs. Please visit www.sam-esi.com or www.synergysettlements.com for more information on our products and services.