Protect Your Client, Protect Yourself

If you’re familiar with Grillo v. Pettiete et al., 96-45090-92, 96th District Court, Tarrant County, Texas, you know how important it is to explore whether a lump sum settlement is appropriate for your client who has suffered an injury or traumatic event. When it comes to cases involving future medical or financial needs (such as to replace lost or diminished income and/or attendant care), structuring at least a portion of the settlement isn’t just wise, it’s the proper thing to do. And when I say “proper,” what I mean is that if you neglect to structure at least a portion of the settlement, you can potentially be held liable for that failure to satisfactorily meet the needs of your client.

In Grillo, an attorney was sued for negligence and legal malpractice for not recommending a structured settlement over a lump sum. This wake-up call, nearly 20 years ago, highlighted the importance of taking into account the many and varied expenses, as well as existing and future government benefits, related to a case. Many plaintiffs who have been physically injured will have lifetime expenses as a result. Meanwhile, the biggest problem with lump sum settlements is that they are often dissipated in a mere handful of years.

Considering you have one window in which to structure a settlement, you have an ethical obligation and legal responsibility to: (1) resolve any medical liens (including Medicare or Medi-Caid [Medi-Cal in California]); (2) identify any obligations to fund future medical care needs; (3) work to preserve any government benefits; (4) suggest interim funding options to allow additional time to make decisions regarding settlement funds; and (5) present settlement funding options that will ensure guaranteed income streams and protect family members in the event of your client’s death.

As an attorney, you can choose to handle everything related to examining the options and structuring the settlement. However, few attorneys have the time, energy or desire to do much of the tedious work involved. Furthermore, when they enlist the help of a certified structured settlement consultant, attorneys know that the process for structuring a settlement will be efficient and thorough, in addition to ensuring that their fees are paid in a timely manner.

Allow me to illustrate how a settlement consultant can help protect your client as well as your practice and reputation (from the accusation of negligence or legal malpractice). I was recently brought in on a bus accident case that settled for several million. Although the matter settled just as the trial was commencing, a significant amount of work was performed following the settlement. Here’s what my work as a certified structured settlement consultant involved.

Researching & Protecting Government Benefits

The plaintiff in this case began receiving social security disability income (SSDI) and Medicare many years prior to the personal injury incident. Medicare benefits are entitlements that are afforded to people who are disabled and eligible because they have worked their requisite quarters and have paid into the benefits, usually through FICA taxes. When the plaintiff was injured by a third party, he continued to receive medical treatment through his Medicare benefits, which needed to be reimbursed at the time the personal injury case was resolved. A medical savings account (MSA) was established to protect future benefits, as it should be in personal injury cases where the settlement is sizeable and the client is on Medicare and is going to continue to use Medicare for treatment of his injuries.

The plaintiff in this case also qualified for and received SSI and Medi-Cal benefits. Medi-Cal benefits are those medical benefits afforded to low-income and no-income people who are also receiving supplemental security income (SSI) or have a Medi-Cal waiver. The Medi-Cal lien must be resolved at the time of settlement or resolution of the personal injury case. A special needs trust (SNT) was prepared to protect his monthly SSI and Medi-Cal benefits. An SNT is necessary when your plaintiff is receiving SSI and Medi-Cal unless the plaintiff is willing to lose his monthly SSI and Medi-Cal benefits. Losing these benefits can be detrimental to your client, as he will also lose his eligibility for long-term care benefits, which may be the most important of all. If your client does not elect to set up an SNT, you should prepare a disclosure to the client that such public benefits will be lost if he opts out.

Resolving Private Medical Liens & Establishing a QSF

In addition to the Medicare and Medi-Cal lien, the plaintiff in this case had private medical liens that were not paid by Medicare or Medi-Cal. A 468B Qualified Settlement Fund (QSF) was created so these liens could be negotiated and resolved without delaying funding the settlement. The QSF also protected the plaintiff’s public benefits. If a QSF had not been created in this particular situation, the plaintiff would have been in constructive receipt of the settlement proceeds. Therefore, he would have been in danger of losing his SSI, Medi-Cal and long-term benefits because he would no longer be considered “low income/ low-asset.” Finally, by creating a QSF for the plaintiff, he (rather than the defendant) earned the interest on the funds in the QSF.

Note that among other benefits of the QSF, the entire amount of the settlement is deposited into it and, in most cases, the QSF administrator can immediately pay the attorney from that account, without waiting for the other liens to be resolved.

Creating the Structured Settlement

A structured settlement is a financial package designed for the plaintiff and paid by the defendant, the insurer, or a QSF administrator. It is limited only by the ingenuity of those involved. In its most fundamental form, a defendant, insurer, or QSF administrator agrees to make future periodic payments to the plaintiff by purchasing an annuity from a life insurance company.

A structured settlement allows a plaintiff to receive guaranteed, tax-free income. The payments are not vulnerable to those who might put the funds in the hands of unscrupulous outsiders, or who might squander the funds in a well-meaning attempt to assist the plaintiff.

The plaintiff’s attorney may also benefit, as there is the choice to have his/her fee paid in a lump sum, in periodic installments, or payment over a number of years.

We worked with the plaintiff in the bus accident case to design a plan that gave him the peace of mind of a lifetime income stream that includes cost-of-living increases via a fixed annuity.

Many times, liquid investments and life insurance policies need to be part of the plan. For example, when a family member is the primary caregiver, utilizing alternate investments with a death benefit adds additional financial coverage to the injured plaintiff and his or her loved ones.

Finally, estate planning needs to be part of the settlement plan, especially considering that estate tax rules change frequently. In this case, the plaintiff’s plan was designed to cover any estate tax issues upon death so that his family did not have to bear any unexpected burdens. The plan also allowed the proper investments to have funds available should he incur an estate tax bill. Settlement consultants are not trust or tax attorneys ordinarily, but can help identify whether a tax or estate planning attorney needs to be involved.

A Win-Win

Because of the exceptional settlement that the plaintiff’s attorneys obtained for him, and the subsequent settlement plan that was created, the plaintiff in the bus accident case was able to buy a new home, furnish the new home, account for future medical expenses, and continue to receive social security benefits without losing his Medicare and Medi-Cal healthcare coverage. He was extremely happy with the settlement process and the various instruments that were utilized to protect him financially and provide for his future. And his attorney was quite pleased to work with someone who knew what questions to ask and how to best structure his client’s settlement. Using a settlement consultant made his client happy, allowed him to get paid in the manner most convenient for him, and protected him from a lawsuit.

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Traci Kaas is a Certified Structured Settlement Consultant (CSSC) and Managing Partner of Traci Kaas. Traci is also a member of the National Structured Settlements Trade Association. She can be reached at info@tracikaas.com.

This article first appeared in Orange County Lawyer, December 2012 (Vol. 54 No. 12), p. 30. The views expressed herein are those of the Author. They do not necessarily represent the views of Orange County Lawyer magazine, the Orange County Bar Association, the Orange County Bar Association Charitable Fund, or their staffs, contributors, or advertisers. All legal and other issues must be independently researched.