Sometimes, life throws us curveballs that we can never expect or prepare for. Such was the case for Russ, one of my clients. Russ’ wife was in a terrible auto accident in 1996 and it turned their world upside down.
Here’s Russ’ story in his own words.
On October 10, 1996, my life changed forever. Less than a mile from our house, my wife had stopped at a red light when her car was rear-ended by a large truck going about 40-45 miles per hour. The impact spun her car around, slamming her into the vehicle stopped in front of her. She suffered two injuries: a cut on her nose and a spinal dislocation causing her to immediately lose all movement and feeling below her shoulders, rendering her a C5/C6 quadriplegic. Thus began the darkest, most horrible period for our family.
I will not explore the medical, psychological and logistical issues of people and their families affected by this sort of accident. Those are topics for another discussion, which, even 17 years later, I find difficult, sad and painful. That said, my advice to anyone going through a similar situation is to find people you can rely on to help you navigate through the challenges and issues you will face. Also, always be on the alert for false friends, needy family members and scam artists who come out of the woodwork after a large settlement or jury verdict who only want to take the money and run. It’s OK to say no.
Given the circumstances of the accident and the severity of my wife’s injuries, we interviewed several law firms and found an excellent attorney to represent us in filing a personal injury lawsuit. We were also “fortunate” in that under California law, there is no cap on liability if the defendant is a public entity; and the truck that rear-ended my wife’s car was owned and operated by the local public school district. This meant that the defendant could potentially be hit with a very large jury verdict, giving us the leverage to successfully negotiate a large settlement without having to go to trial.
With the resolution of the legal case came the need to decide how to receive the settlement money. We certainly could have taken all of the settlement funds in cash and then invested that cash. Alternatively, we could take part of the settlement in a structure, taking the balance in cash. After a significant amount of thought, we ended up taking about 45% of her award, post expenses and attorney fees, and putting it into a structure.
We researched my wife’s anticipated expenses and then set up the structure to provide monthly payments to cover them. Importantly, the structure was designed to provide enough funds to take care of her needs and to assure her of a reasonable life income regardless of whether she lost the rest of her money in bad investments or a stock market reversal.
Since the structure was intended to protect her basic needs, we needed to consider the impact of inflation knowing that the average long-term inflation rate in the United States averages around 3% annually. So, to make certain that the monthly payments kept up with the higher expenses that we knew we could expect in future years, we made sure that the structure included inflation protection.
We purchased an annuity that would make monthly payments for her lifetime, or if she were to die, for a period of 15 years from the date of the start of the payments. My wife passed away about three and a half years after the annuity payments started. As her beneficiary, the payments were then made to me for the balance of the 15-year period.
There are substantial tax advantages to structured payments. All are free from federal and state income tax. Every dollar that is paid under the annuity is a dollar of real income. Income from investments purchased with the other funds received from the settlement is not tax free unless it is from municipal bonds. However, even municipal bond income has some financial implications that do not apply to structured payments.
The returns on the annuities that we purchased for the structure were competitive, particularly considering the inflation protection that we purchased. Overall, I was very satisfied with the structure that we purchased for my wife. The only thing that I would recommend would be to purchase lump sum payments at 5, 10, 15 and 20 years. With a severely injured person, there will always be large expenses to replace vital equipment or for other needs, and these lump sum payments can be used to easily cover them. If someone is not experienced in budget planning, those additional replacement expenses could prove to be an unnecessary challenge.
The use of a structured settlement is both an economical and appropriate way to meet the needs of a person who will require a lifetime of medical care and on-going expenses. For my family, the structure brought us a knowing peace of mind that we had the financial wherewithal to handle all of the “surprises” that came our way.
It’s always gratifying to hear from clients years after their structured settlement was created, and learn how it has helped them get through very difficult times.
– Pat Farber