A sudden, large cash settlement can disappear just as suddenly without proper planning
We settled a case for an individual with a career-ending injury. At the mediation, we spoke about various options that were available. Our client talked about the possibility of buying a home, and considered a structured settlement – an option we left open for him to think over for a couple days. He called the next day.
“I’m going to take all my money in cash,” he said. I asked what changed his mind. “My cousin is going to help me open a limousine business.”
“Really?” I asked. “In Oildale? Let’s talk about it for a minute.”
Start the discussion early
In most cases, your clients won’t have had the experience of handling large cash sums. You also face a delicate balance early in a case. You don’t want to give them false expectations about case value. In fact, you really don’t know the true value most of the time until well into the case (those moving targets of liability, damages and collectability sometimes switch around as discovery progresses). At the same time, if the clients are potentially going to receive a large amount of cash, you need to educate them about why they are receiving it and ways to protect it.
We handle this by describing how exposure is calculated, and explaining that the value of the case decreases from that exposure number. We also describe the interplay of liability, damages and collectability, and how those can significantly impact exposure. We explain that the money they may receive is there to make them whole and take care of their future needs. We also tell them that if everything works out very, very well, they may need to make some future decisions about how to handle funds.
Why early? Because settlements, mediations, and the subsequent resolutions can happen fast. If mediation is the first time your client considers these issues, poor decision-making may result.
Recognize your limitations
They call you counselor for a reason. But it is counselor at law, not counselor at finance. You are a skilled plaintiffs’ lawyer. You likely are not a financial planner, structured settlement broker or real estate investor. Despite this, many clients turn to their lawyers for input come settlement time. That’s when you want to make sure their financial questions are addressed by skilled financial professionals. You may not be one of those.
Invite the right people to the discussion
So you know you need to give the client an opportunity to speak to skilled folks. But the client likely has other people who should weigh in. A husband, wife or trusted financial advisor. Tell your client these people should be a part of the discussion. Their thoughts are imperative in making sure your client has the right people guiding the decisions.
This is another reason for starting the discussion early. It is much easier to put the finishing touches on a settlement agreement with structure language when the family and the family’s advisors have had an opportunity to consider the decision fully.
Offer but do not push structures
You should include a discussion about the option to structure a settlement, with its benefits and limitations. Some attorneys feel that low interest rates currently make structures unpalatable. But that is our client’s decision, not ours. Remember – a structure broker makes money from selling structures. So while the broker’s input may be valuable, it is not invaluable. We typically suggest a plaintiff-side broker, but also tell the clients to work with any individual they choose. The caveat is that the client should work with someone who knows the specialty market of structures, not a garden-variety financial planner who does not understand the tax implications.
Consider Qualified Settlement Funds
What is a Qualified Settlement Fund? A QSF is a specially requested trust overseen by the court. Simply put, this means the settlement funds have not been received by the client. But the client can direct the trustee on where to place the funds. As a result, a client can delay structure or investment decisions until markets improve. It is an important tool to consider when interest rates are low. For example, a client could request that the funds be put in bonds, and then request a structure years later.
But a QSF is not right in every case – there’s time and cost involved in setting it up. As a result, it is better geared for larger cases.
Limousines in Oildale?
We discussed the potential risks associated with putting funds that were supposed to take care of our client for the rest of his life into a risky new business. Fortunately for him (and unfortunately for those wishing to go by limousine in Oildale), he agreed. It does not always work out that way. In the end, the decision, like whether to settle, is the client’s to make. Just be sure to arm the client with the information so he stands the best chance of making the right decision for his situation.
Miles B. Cooper is a partner at Coopers LLP, where they help the seriously injured, people grieving the loss of loved ones, preventable disaster victims, and all bicyclists. Miles also consults on trial matters and associates in as trial counsel. He has served as lead counsel, co-counsel, second seat, and schlepper over his career, and is an American Board of Trial Advocates member.
2023 by the author.
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