How to Allocate a Plaintiff’s Settlement

HomeStructured SettlementsHow to Allocate a Plaintiff’s Settlement

Many people often ask us, “What do you mean when you say settlement planning?” Basically, settlement planning is the process of deciding how to allocate a plaintiff’s settlement. The 4-bucket approach to settlement proceeds planning involves allocating the funds between four different financial “buckets” — and figuring out how much of the settlement to put in each bucket based on a client’s particular situation.

The Four Buckets of Settlement Proceeds Planning

The four buckets, in order of most liquid to most restrictive, are:


Cash is extremely flexible and liquid. You can buy homes with it. You can buy cars with it. You can do whatever you want with it, but the problem with cash is you can also dissipate it. When clients receive a settlement in cash, too often the settlement funds are gone in a short period of time.

Investment Account

Next up is what we call the “Investment Account” bucket, which is a bit more restrictive than cash, but still fairly flexible. A good example of an investment account bucket would be an investment account at Charles Schwab or TD Ameritrade, where settlement proceeds are invested and growing. 

Clients still have access to the funds if they need it, but they would have to call the financial advisor assigned to their account first to access their funds. The financial advisor is there to give advice and keep the client from doing something unwise with their funds. That being said, the client still has total control over that bucket, so it is still fairly flexible and liquid. 

Settlement Trust

The next bucket is what we call a “Settlement Trust.” This bucket is less liquid and more restrictive than an investment account. Inside a settlement trust, settlement proceeds are still invested and are fairly liquid. However, in contrast to an investment account, there is a trustee who decides what funds in the trust are used for and what they’re not used for. In other words, trustees essentially have the keys to the car. 

This makes it harder for the claimant or the plaintiff to use money unwisely because there is a trustee between the client and the settlement funds. Settlement trusts are a very popular settlement planning tool because they offer a good balance between flexibility and liquidity, and they provide valuable dissipation protection. 

Structured Settlement

The final bucket is the “Structured Settlement” or “Annuity” bucket. In this bucket, things are very restrictive. Once you decide how much you are going to put into an annuity, it is really hard to take out the funds in most situations. However, it is also very safe and very guaranteed, which makes it very hard to dissipate funds, especially if set up properly.

In Summary

Settlement planning involves allocating a client’s resources amongst the four main buckets: cash, investment accounts, settlement trusts, and structured settlement annuities. This is the 4-bucket approach to settlement proceeds planning.

Depending on the facts of the case and the needs of the client, we often allocate the settlement proceeds between multiple buckets, and or sometimes in a large, catastrophic case, we’ll recommend funds be placed in all four of the buckets.

Our role as settlement planners is to help your client think through all of these issues and allocate their settlement amongst those four different buckets. So, if you have a case where we can help allocate your client’s settlement proceeds, or help the plaintiff figure out how to best allocate their funds according to their needs, please give us a call.

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