Plaintiff attorneys need to be aware that by disbursing settlement funds to their clients they could be jeopardizing their client's current and future needs-based public benefits, and putting themselves at risk for malpractice claims. Many injury victims arrive at the settlement of their personal injury case financially destitute. They have often lost their primary source of income and are faced with enormous medical expenses to care for the injuries they have suffered. As a result, many injured clients rely on government assistance in the form of Medicaid to cover their medical expenses and Social Security Income (SSI) to pay for basic living necessities.

Plaintiff attorneys need to be aware that when settling future medical benefits from Worker's Compensation or a liability carrier or self-insured entity, if Medicare's interests are not considered, stiff penalties can follow to the attorney and client.  

The Centers for Medicare and Medicaid Services (CMS), the federal agency that administers Medicare, has the responsibility to recover monies from past overpayments and to ensure that future medical benefits are paid by the primary payer (liability insurers, Worker's Comp, self-insureds, judgments, settlements, compromises, etc,) and not shifted to Medicare.

The previous article on this topic addressed the myriad uses for structured attorneys fees – including asset and creditor protection, flexibility of payout design, retaining valuable associates, steadying the firm’s cash flow, unlimited contribution amounts, and lifetime guaranteed income to name a few.  While all of these are creative and appropriate uses of structured attorney’s fees, by far the most common objective of most attorneys in utilizing a structured attorney fee is to provide themselves with guaranteed retirement income.

The tax savings available via structured attorney's fees are known to most personal injury attorneys, and rightfully so.  The tax savings can be significant due to the deferred income taxation on the principal (the amount of the attorney fee placed into the structured settlement annuity) and the interest earned on the principal.  In other words, neither the principal nor the interest earned on the principal are taxed as ordinary income until the year payments are received.

Settling cases can be more complicated when the claimant is a minor. Often an ad litem is appointed to protect the interests of the minor or to advise the judge, who generally must approve the settlement. These added participants often take an interest in what happens to the money. Sometimes the added participants have a different view of what is in the best interest of the child than the plan proposed by a settlement planner who has worked with the family. Trouble may emerge if the family had relied on a certain plan when they agreed to enter into a settlement agreement and then find out they cannot accomplish their goals. Personal injury attorneys can become frustrated when an ad litem who seemed to procrastinate working on the case until the eleventh hour wants to see changes in a settlement plan that had been carefully put together after a lot of work, family politics, and haggling with the defense. In other instances, a judge may surprise everyone by requiring changes to the plan before he or she will approve the settlement.

An attorney settling a personal injury case involving a structured settlement has a duty to get the best possible annuity rates available for the claimants. However, many personal injury attorneys simply assume that the annuity quote they and their clients receive is the best rate available. This is not always a safe assumption.

A plaintiff attorney may be getting rate quotes from a defense-provided expert or the attorney may retain his or her own structured settlement specialist. It is clearly preferable to retain your own settlement specialist and to make sure that the specialist retained will quote all of the companies in the market and select the best quote available. A structured settlement specialist retained by the defendant's casualty career will be loyal to that carrier and can save that carrier money at the expense of your client.

Structured settlement annuities usually offer an excellent alternative to traditional investments. They are especially attractive when more conventional investments are performing poorly or the risk inherent in such investments is too much to bear.

Section 1.468B-1 of the Internal Revenue Code provides a framework for establishing Qualified Settlement Funds (QSF). This section of the IRS Code was originally enacted to simplify the settlement of mass tort cases. However, it has also become a popular vehicle to settle all kinds of cases, including those involving a single personal injury claimant. A QSF is an ideal tool to help resolve Medicare/Medicaid liens, legal and experts' fees and costs, and provide time for the injured party to make sound decisions regarding the financial aspects of the settlement.

As most plaintiff attorneys know, Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 imposes reporting obligations on insurers in settlements involving current Medicare beneficiaries. CMS has recently changed the first reporting date for live "claim input files" from April 1, 2010 to January 1, 2011. CMS has pushed back the deadline but asked defendants/insurers (referred to as "RREs") to continue with system testing and development. The new timeline essentially gives RREs some extra time to more fully understand the guidelines and test their systems.