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Milestone Consulting, LLC
(716) 883-1833

Once upon a time, there was one common way to split an incoming personal injury settlement into set future payments. The money would go into a structured settlement annuity, which would provide plaintiffs with their agreed-upon payments over years. And back in the day, annuities were a viable option with four to five percent expected growth. But after the 2008 recession, returns on annuities took a nosedive and never fully recovered, now yielding one to two percent for plaintiffs who receive their settlement over time. Naturally, this low growth has turned some trial lawyers off from recommending periodic payments to their clients. But now there is another option with a much better yield. It’s called an investment-backed structure, and it’s a tax-free settlement design.

If you’re a trial lawyer with personal injury clients, you are doing your clients a disservice if you are not familiar with this option. An investment-backed structure offers a higher yield on settlement payments over time, without the tax burden that typically comes with an investment portfolio. By utilizing an investment-backed structure comprised of a diverse investment plan, clients can grow their funds for years (or even decades), reaping the benefit of not only their settlement, but also the tax-free growth of their settlement.

A settlement that’s structured into a fixed guaranteed annuity at current rates will yield between one and two percent, whereas a professionally managed investment-backed periodic payment obligation can show greater yields. Average market activity over the course of ten years indicates seven to nine percent growth on average, but no future returns are ever guaranteed. The periodic payments a plaintiff receives are tax-free, and the growth on the account is tax-free. This settlement design is a no-brainer, especially for younger plaintiffs.

For example, take Stephanie*, a sexual abuse survivor. At 24 years old, she has a lot of time to be strategic with how she manages her settlement money. She has a good career and does not have an immediate need for all of her settlement money. Stephanie is placing nearly one million dollars in an investment-backed structure. She is scheduling payouts for a wedding when she turns 26, a first home when she turns 28, and then letting the rest grow until a planned early retirement at age 50. While her attorneys fought hard for her settlement, our tax-free settlement design will allow her settlement to positively impact the rest of her life.

There are a few other differences between traditional structures and investment-backed structures besides their yields, which an experienced settlement planner can clarify. But fully understanding the benefits of tax-free settlement design for your clients can help you guide them when structuring is the right move.

If you’d like to know more about tax-free settlement design, give me a call. I can give you the rundown and explain why this could be a viable option for future clients.


*We changed our client’s name for her privacy.

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