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John Bair
John Bair
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Building Smart to Prevent Erosion: A Financial Metaphor

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settlement planning expertAs Hermine continually battered coastal beaches this week, I started thinking about the meaning of erosion and how it applies to other areas of people’s lives. Erosion is a devastating natural occurrence that can take away everything a person owns in a short amount of time. As settlement planning experts, we consider this concept every day.

It’s not enough for individuals to get the money to build a house they will depend on for the rest of their lives. In the same way that a lump sum settlement can be very helpful in the immediate present, without appropriate planning, it can be useless in the future.

When people build their homes near the ocean, they need a special contractor to take into consideration the effects of erosion and the environment on their investment. It’s the contractor’s job to tell the future homeowner how to “build smart.” This basic concept also exists with all settlements, because just having the money to build a financial house isn’t enough. The right knowledge and specific experience regarding what to build is critical for the money to last a lifetime.

The eroding effects of life after a settlement can blindside the inexperienced. Inflation, out of pocket medical costs, dissipation, charitable giving, and even the pursuit of happiness in the form of spending can pick away at any amount recovered in a lawsuit intended to support a person for life. Workers’ compensation rates for healthcare workers, easing pharmaceutical costs, and early investment losses are known long-term systemic risks. Identifying the specific risks – and planning for them for any given family can be worth as much as the settlement. A settlement plan takes these issues into account and prepares for them.

A decade ago, you could guarantee the protection of a plaintiff and their family through the use of an irrevocable structured settlement or structured annuity. It was a wonderful tool when interest rates were seven percent. With the added “tax-exempt” interest carrot, these arrangements made sense in almost every case.

The necessity of qualified settlement funds, lien experts, special needs trusts, Medicare set-asides, selection of professional trustees, investment managers, case managers, healthcare advocates, and medical custodial accounts are just some of the areas of expertise your settlement planner needs in order to best serve your interests.

There is one clearly identifiable risk faced by plaintiffs settling this year and next: in order to buy protection for their lifetime, they have to accept that some of their money won’t earn much, at least not without taking real risks in the marketplace. Our low yield interest environment is especially harsh on plaintiffs settling between 2013 and 2018. For those who have this timing risk of settlement, there is a greater necessity to build a team around your family. That way, they will learn how to build smart when securing their financial life.

The utilization of domestic asset protection trusts in Delaware, Nevada and South Dakota are very useful in safeguarding the assets made available in settlement. These trusts are extremely useful in the protection of assets for young adults. With jurisdictions legislated for protection trust beneficiaries, not creditors, these trusts will protect against most catastrophic losses that can occur to anyone, but especially the financially young.  Bankruptcy, divorce and starting a business are some of the leading causes of dissipation to vast amount of money set aside for injured plaintiffs. Only these asset protection trusts protect the assets in these circumstances.