OPTIMUS For Attorneys
Caring for your Clients Long After Their Case Has Settled
If you’re at a point where you’re considering a structured settlement as an option for your client, then you’ve likely done a good job representing their interests thus far. With a structured settlement, providing for the wellbeing and security of your client can extend far beyond winning their case.
Industry estimates suggest more than 80% of people who receive lump-sum settlements spend or lose all their money within 5 yeas of receiving it. If the purpose of your client’s award is to provide for their future medical treatment, or replace lost future earnings, then their money has to be there for them when they need it.
With a structured settlement, your client’s financial security is guaranteed, which means the money you helped fight for is guaranteed to be available for its intended purpose—to care for long term necessities.
Understanding Your Client’s Options
If your client is 18 years of age or older, there are many settlement options available to them:
- Lump Sum: With a lump sum, your client receives their money up front. While it may be nice for them to receive all their money at one time, the probability of their money lasting long enough to provide for its intended purposes is low.
- Trusts: Your client can elect to have their money placed into a trust under the management of a professional money manager to invest, i.e. risk. A trust does not enjoy the tax benefits of a structure, and your client will still have access to their money, so the risk of them spending their money before they need it still exists. Trusts are also expensive; annual management fees on most trusts vary between 50 and 150 basis points, which add up to large financial and economic costs over time.
- Structure Settlement: Guaranteed financial security, guaranteed protection from poor financial decision making, tax-exempt interest income, completely customizable, no ongoing fees or commissions, no cost to set up, complete security and peace of mind.
If your client is under 18 years of age, receiving a lump sum is not an option. The only options available to them are Structured Settlements, Trusts, and Deposits with a Court Registry.
- Deposit with a Court Registry (called a “blocked account” in some states): With a court registry deposit, your client’s money is paid to the court, which invests the money in guaranteed securities, usually on a short term basis. The downside of a court registry deposit is the extremely low rates of return they provide, i.e. typically less than 1% per year. If inflation is 3% and your client is earning 1%, then your client’s effective rate of return is -2% annually. Also, a court registry only holds your client’s money until they’re 18, at which time they receive all their money in a lump sum.
Maximizing Value for Your Client
Your client may need more money to care for their future medical or earnings requirements than their award will cover. A structured settlement can help your client maximize the value of every dollar they receive. By leveraging the time value of money, a structured settlement enables your client to cover the future value of anticipated financial obligations at discounted present value. This means they can get more of what they need with every settlement dollar they’re awarded.
Protecting Your Client Through Government Compliance
The receipt of settlement money is not without risk to your client. If your client receives a lump sum or has their money placed into a trust, he/she may become inadvertently disqualified from receiving government benefits, such as Medicaid or Supplemental Social Security. Optimus can work with with your clients to ensure they do not jeopardise these important sources of income.
Additionally, if your client is, or if they will become a Medicare beneficiary within 30 months of their date of settlement, they may be obligated to reimburse Medicare for the expenses it incurred providing for their care, and ensure Medicare is the secondary payer for all future Medicare-allowable expenses. Failure to protect Medicare’s interest exposes your client to potentially punitive government fines and liens.
Working with your clients to address these important compliance considerations is a standard part of every Optimus engagement.
Mitigating Post-Litigation Attorney Risk
As a practicing attorney and fiduciary, you are not without risk. Ensuring your clients are aware of their all their settlement options, as well as their compliance obligations, can help you mitigate your exposure.
Informing Clients of Their Settlement Options: Cases such as Grille as. Tom L. Petite, T. E. Sate and Hardy, Milton & Johns (cause No. 96-167943, 96th District Court of Tar rant County) illustrate the potential liability inherent with not informing your clients of all the settlement options available to them. Mrs. Grille successfully sued her attorneys for $1.6 million because they failed to inform her of a structured settlement as an option to her case. An Optimus ORE AnalysisTM can address this issue by presenting your client with a detailed, written communication of a structured settlement option. Optimus provides ORE AnalysesTM a as complimentary service to clients and prospective clients.
Informing Clients of Their Compliance Obligations: Section 111 of the Mandatory Insurer Reporting Act requires insurers to report all personal injury settlements to Medicare. This reporting alerts the CMS to recoup funds for all medical costs it paid prior to any settlement, and to deny coverage of future costs until a person’s Medicare Set-aside Account has been exhausted. In cases in which beneficiaries have as mismanaged settlement funds and/or cannot reimburse Medicare, the CMS has transferred liability to the beneficiaries' legal counsel by claiming negligence to counsel compliance with the Medicare Secondary Payer Act (see U.S. v. Harris, and U.S. v. Stricker).
Let Optimus help you reduce exposure by providing you and your clients the information you need to make well informed choices, and ensure you get the best structure possible at the lowest possible price.