Last week, ABC News reported on the case of Eric and Cassandra Peoples. In 2004, the Peoples were awarded $20 million for health injuries sustained from extensive exposure to diacetyl, the chemical that gives microwave popcorn its buttery flavor and aroma. On September 10th, the Peoples filed for bankruptcy.
As ABC reported, "The Peoples' bankruptcy petition, […], does not describe the luxuries one might associate with a $20 million windfall. It lists personal property assets of not quite $33,000. The couple also own a home valued at $700,000 on 10.5 acres. The filing claims the couple's total liabilities are in excess of $611,000."
Where did things go wrong? Accepting a lump sum appears to be the attractive option, so why is it that most people who receive a cash settlement spend most of the money within the first few years?
In cases like this, the money is generally spent on:
- Taxes and fees
- Healthcare costs
- Lending or giving money to family and friends
- Risky and/or volatile investments
- Pursuing dreams
- Spending to "treat" pain and anguish
- Purchasing expensive items and/or property
The problem resides in the vulnerability that plaintiffs face after receiving a settlement. Few have experienced any wealth, so they lack the contacts and relationships to help them manage their money. Instead, the gut reaction for most is a flight to safety, banks, and FDIC coverage, or to spend it in one or more of the areas listed above. Strategically speaking, these are steps in the wrong direction.
Families need exposure to unbiased advisors whom they trust, who will help them understand the risks and responsibilities associated with significant recoveries, and who will ensure that the family takes ownership over the plan.
For instance, after working with the Peoples to understand their long-term goals and needs, we might have presented the following scenario:
Combine an asset protection trust with a tax-exempt structured settlement. Based upon interest rates in 2004, had just 40% of the recovery been earmarked for the income strategy, it would have produced over $300,000 of guaranteed tax-free income over the Peoples' lifetime. The balance would be placed in a trust, to earn conservative returns with fiduciary oversight.
Regardless of what the injured party elects to do, it is important for the attorney to encourage the creation of a plan for the settlement recovery before the case is settled. It takes time to build the trusting relationships needed to create a plan for a lifetime of financial security. No plaintiff should have to worry about facing tragedy again less than ten years down the line.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).