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Milestone Consulting, LLC
(716) 883-1833

In the times of COVID, many people are wondering if they should just park their settlement money in certificates of deposit (“CD’s”), or bank savings, or a US treasury money market or fund. Not bad questions or instincts, as these are unsettling times.

The one thing to remember is that the IRS allows you a lifetime exemption on ALL of the earnings of your personal injury settlement, IF you follow the guidelines and create a periodic payment for yourself.

It is one of the few times in life you’ll get to have your cake and eat it too when it comes to paying taxes. Who wouldn’t want a tax-free investment account over a taxable one? Just think: it’s basically like creating a huge $1M or $2M ROTH IRA, and never paying taxes on the earnings or distributions.

Why is this possible? For over 30 years, the IRS has issued guidance that if you create a periodic payment – a specialized type of settlement account at the time of your settlement – you don’t pay taxes on the earnings. It’s that simple. These accounts can be funded with treasuries, CDs, annuities, or any security such as bonds and stocks.  The important thing is to work with an experienced settlement planner vs a traditional financial advisor, because almost all financial services companies don’t specialize in personal injury, and they likely won’t know about these types of accounts. People in the industry refer to them as non-qualified structured settlements, or Investment Backed Structured settlements. #taxfreesettlementplan

If you are settling your personal injury lawsuit, and have significant money leftover after liens and litigation finance loans are repaid, then considering this tax-exempt wrapper is worth a hard look.

Take this example: A 50 year old settles a $1.3M case for a serious back injury from an auto accident. After three back surgeries, he is retired from working in his trades. Net of attorney fees and a small medical lien, his take home is about $825k. After paying cash for his house, he is left with $600,000 to invest. He primarily needs safe and steady income. Over his lifetime, the $600K will earn over $1 million, and he will pay close to $300K in federal and state income taxes on the earnings.  The ability to create a lifetime tax exemption is worth 50% of what his net settlement was for.

Our firm has consulted on tens of thousands of cases, and billions of dollars of settlements of all kinds, and the important takeaway is that planning is critical to your future success. Every bone in your body is going to be telling you just to settle, get the money safely into a bank, and then to think about your options. It is natural to think this way. The problem is, it’s like spilled milk. The IRS won’t let you create a tax free settlement plan after the fact.

If you or a loved one are considering settling and want some advice for free, or a no obligation consultation, please call me or text me, 716.864.8917. I’m the CEO of the firm and I’ll respond to you personally.   

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