Structured Settlements: Updates and Innovations

Most plaintiff attorneys are aware of and have used structured settlement annuities for their settling clients – perhaps more so years ago when fixed interest rates on a typical structured settlement annuity were closer to 6-8% than in recent years with such interest rates hovering near 2-4%.

We understand that structured settlement annuities are not perfect solutions for many settling plaintiffs.  However, in many cases a well-designed structured annuity is exactly the right fit for a portion of the settlement funds.  We are concerned that the low-interest rate environment we are currently experiencing has resulted in plaintiff’s attorneys neglecting to even consider this option for their settling clients.

For example, even with current interest rates, for minor’s cases, a 2-3% tax-exempt rate of return on a structured annuity that will begin paying once the child reaches age 18 will net that client much more than simply placing the funds in a blocked account at a bank, where the funds will earn a taxable ¼ to ½ of a percent per year.  With the ability to structure amounts as little as $10,000, the years the annuity can grow before age 18 can result in substantially larger payouts once the child reaches the age of majority.

Additionally, one annuity company, Pacific Life, now offers an “index-linked” annuity product to settling plaintiffs.  In simple terms, a client’s future annual payments will increase in years with positive S&P 500 index returns, and will remain unchanged in years with stable or negative S&P 500 index returns.  This allows clients the ability to participate in future equity market gains, while guaranteeing that their future payments will not decrease.

Of course, every client’s situation is unique, and no one product is the right fit for every settling plaintiff.  We can help clients evaluate and implement all their potential settlement options (cash, structured annuity, trust, managed investment account), as well as provide a thorough review of each client’s government benefits situation (Medicaid, SSI, etc).  This new product from Pacific Life simply gives us one more tool in our tool belt.  (Incidentally, this has been very well-received by plaintiff attorneys that are interested in deferring their contingent legal fees but have been reluctant to do so because of the current low interest rates offered by traditional structured settlement annuities)

More information regarding Pacific Life’s indexed-linked structured annuity can be found here.  The IRS Private Letter Ruling Pacific Life received for this product offering can be found here.

We would be happy to discuss this and all other settlement options with you and/or your clients.   Whether a structured settlement annuity is the right fit for your client or not, every settling client deserves education regarding all of their settlement options, and a plan from an expert settlement planner before their funds are distributed to them.

Please contact us the next time you are near settlement of a case.  Clients that are properly informed about their options at settlement are generally much more pleased with the overall settlement, and stand a much better chance of having their settlement funds available to meet their needs well into the future.

We look forward to working with you and your clients.

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