Do You Have a Settlement Brain Trust?

Originally Published in the OCTLA Gavel

In all likelihood, you, as your client’s attorney, will be the most trusted person a plaintiff will know over the course of their case. With that trust comes a profound responsibility, and the best way to honor that trust and responsibility is to have a team of specialized advisors—a Brain Trust—available to your client so that their post-settlement experience is seamless and every need they might have related to their “new normal” has been planned for, in advance. This article is intended to provide an overview of potential members of a Brain Trust based on the elements that may arise in any given case but is not intended to provide specific guidance or recommendations as to required Brain Trust members, which will vary according to the facts of each case.

Studies show that during stress, the mind may be functioning at a 20% deficit. And the process of settling a case is highly stressful for a plaintiff. Settling a case when cognitively impaired compromises decision-making at a time when irrevocable decisions are being made. From the way the settlement is structured, to the various legal, tax and financial planning decisions the settlement triggers, there is much to be done and much to be carefully considered. A Brain Trust is invaluable to your client, as well as your business, and ideally will comprise the following trusted professionals:

Settlement Consultant

It is important to work with a consultant who truly understands your client’s needs. There can be many pitfalls with working with a “per case” broker you do not have a relationship with. There may even be potential liability on your firm for choosing the wrong person. In my experience, many attorneys and even financial planners are undereducated and/or misinformed about exactly what a settlement consultant does. Some envision a broker who puts an annuity together, which is pretty harmless, and that is it. But making sure a client is best served requires considering many variables and options, and is limited only by the ingenuity of the professionals who create it. In your search for a trusted settlement consultant for your brain trust, there are two important questions to ask:

Do they try to structure the entire net proceeds that your client is getting?

Everybody wants their money and they want it now. And that also includes the claimant and the settlement consultant. And if the latter’s only source of income is settlements, they just might be tempted to “over-structure” the client. But the settlement consultant’s priority should always be meeting the unique needs of the client. And if the client has a need to have only a certain amount structured, so be it. Believe me when I say that if that need is not heard and respected, the odds are good that the client will sell their annuity within a few years. Be sure your structure consultant asks questions or reviews a life care plan to really understand the client’s needs.

Does the settlement consultant know how to identify the possible loss of government benefits and possible future benefits?

The settlement consultant should be able to see the red flags and help to identify current and future government benefits that need to be protected. If there are any, a trust attorney should be enlisted to assist with that protection.

Should a trust be utilized, there should be additional language in the settlement documents allowing the structure to be “commuted” into a lump sum for most cases. This allows the trust to reimburse Medicaid or for the family to have funds available for estate taxes upon death. Remember that a structured settlement is income tax-free, but not estate tax-free. If the commutation rider is not inserted, there will inevitably be a tax bill, and the client is rightfully going to look at you for not having considered the option of a commutation rider. And this is not a case where you can go back and correct your mistake. The cost-free option of commutation is offered only during the settlement of the case and must be in the release.

Trust Attorney

A trust attorney might be the most important professional in your Brain Trust. Protecting government benefits is a world unto itself. To protect your firm from future liability, it’s good practice to suggest your client meet with a trust attorney if there are government benefits that need to be protected. The client needs to be educated by a professional who specializes in that area. This obviously best serves the client, but it also serves the attorney’s interests. If you briefly discuss the reality that they will lose their benefits, or they cavalierly say “I’ll just pay for it out of my funds or use Obama – care,” you want to have a disclaimer in your file that states that you referred them to a trust attorney and they chose not to do as you recommended.

Many attorneys and clients have erroneously assumed that the Affordable Care Act (Obamacare) will be the answer to being able to have healthcare coverage at a reasonable premium. Although we all hope a medical insurance solution will come soon, keep in mind that even if the Affordable Care Act stays in place, your client may have a need for long-term care, which is something they cannot obtain without a private long-term care policy. Generally speaking, your disabled client will not be eligible for a private policy.

As you are creating your list of trust attorneys for your Brain Trust, it is important to know that your referring attorney is also familiar with setting up a Medicare Set- Aside trust within the special needs trust. This is becoming more and more important in liability cases.

Estate Planning Attorney

In some cases, a settlement can be thought of as funds that have created an estate. As such, it is important to properly plan for the future of the client and their family. Most people do not set up their living trust, will, and healthcare directives, even though they know they should. A settlement brings those important documents to the forefront, where it should be. Having an estate planning attorney on call is crucial to completing these documents in a timely manner and making sure the client understands exactly what they mean.

Certified Public Accountant (CPA)

If the settlement constitutes funds that create an estate, and the client has never had this much money, it is important to recommend they speak with a CPA. The more money you have, the more involved your tax situation is likely to be. Though the client might already have a CPA, that CPA might not be accustomed to working with the amount of money the client now has. The idea is for you to develop a relationship with a CPA who is well versed in the nuances of tax law and specializes in high net worth clients. All you are doing is introducing a list of names for a consultation and the client will do what they will do. If your case has any punitive damages or wages, there could be a tax liability that should be considered up front.

Furthermore, your client may be in a higher tax bracket as a result of the settlement, and they need to understand the implications of that. They also may have made a few large purchases as a result of the settlement and need to understand what that means for their taxes and overall financial plan. The CPA and estate planning attorney may work side by side if the settlement funds are significant enough that there are estate concerns or if the client wants to gift funds to family members. And they will both work with the final member of the Brain Trust, the financial advisor.

Financial Advisor

Once the settlement documents are signed and the case funding comes in, the client is eagerly waiting for the funds. Unfortunately, so are a lot of vultures in the form of family and friends. In addition, the bank will usually have their internal advisor meet the client the moment they deposit the funds into a general bank account.

As their trusted attorney, the client looks to you for advice. But as an attorney, your liability insurance does not cover financial advice. Not only should you not give financial advice, you should not want to. It is crucial to the well-being of your client to make sure they get the advice of a financial advisor who is well versed in the technical side as well as the human side of life transitions like a major settlement.

Fortunately, there are plenty of competent financial advisors. The key is to develop a relationship with a handful whom you trust and who understand the emotional component of money in transition. Once you have that handful, recommend the client meet with at least three of them. Clients decide on a financial advisor for any number of reasons. Your job is to feel confident knowing that any one of the advisors you recommend is capable of expertly handling both the technical and the human side of the client’s case.

Working Together

A single settlement case could involve: research that reveals government benefits; a Special Needs Trust to protect those benefits; a fund to resolve medical liens; the actual structuring of payments; a financial plan that takes into account tax implications, long-term care and life insurance needs (and possibly even life insurance for a caregiver); and of course, estate planning. Is your practice prepared to handle all of that so that the conclusion of your client’s case moves along seamlessly? Can your practice and current Brain Trust manage your clients’ financial needs, their need for clarity of information and options, and their need to feel supported and confident in their decisions? If not, it is time to create your trusted team.

Having the right team in place makes your clients feel that you not only settle their case, but you truly cared about their wellbeing as they went through this transition. What better way to encourage future referrals to your firm? Brain Trust

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Traci Kaas is a certified structured settlement consultant (CSSC) and Managing Partner of Traci Kaas. She is health and life licensed and a FINRA registered representative. Traci is also a member of the National Structured Settlements Trade Association and trained by the Sudden Money Institute®. She can be reached at 714.335.4977 or info@tracikaas.com.