Business Closure, Divorce, Endorsements and More: Tax-Advantaged Solutions for Non-Personal Injury Settlements
The U.S. Census Bureau estimates that nearly half of American households have lost some employment income since March 2020. Combine income loss with the emotional aspect of unanticipated life events, such as a divorce or harassment, and the financial results can be devastating. As the COVID-19 pandemic continues, many law firms are seeing an increase in civil rights, insurance, and labor and employment cases. In such uncertain times, maximizing and preserving income needs to be a priority.
Even high earners should take note. For instance, most professional athletes earn the bulk of their fortunes within a short timeframe. Many have limited, if any, experience handling large sums of money (the average NFL player is around 26 years old).
Individuals receiving many types of non-physical injury settlements or endorsement deals do not have to accept a cash lump sum. Instead, there are a variety of financial options that provide long-term, tax-deferred income. Non-Qualified Structured Settlements are a good way to accomplish this and offer a variety of underlying investment options discussed below.
As one of the safest financial vehicles available, a non-qualified structured settlement can use a fixed annuity to hold the settlement proceeds. The claimant receives periodic payments based on a pre-determined monthly, bi-annual, or annual schedule. Fixed annuities do not have overhead costs, and the payments are guaranteed1.
Fixed Indexed Annuities
Fixed Indexed Annuities allow for growth that is linked to a market index's performance, such as the S&P 500. If the index sees gains, the fixed indexed annuity payments increase up to a cap. The principal is guaranteed1, so even if the index sees a decline, the annuitant will not see a decrease in their baseline payments.
Settlements Plus™ and Fee Structure Plus®
These two non-qualified structured settlement options, which Sage offers through our industry partner Structures, are market-based structured settlements. Rather than using an annuity as the underlying financial vehicle, Settlements Plus™ (for claimants) and Fee Structure Plus® (for plaintiff attorneys) use a market-based investment portfolio. A financial institution or the claimant’s/attorney’s financial advisor manages the investments, and much like fixed indexed annuities, these offer a greater potential return than a traditional fixed annuity.
Additional Options: DIAs, SPIAs, and MYGAs
There are several additional tax-deferred options available, including:
- Deferred Income Annuity (DIA): Payments starting after 12 months, guaranteed1 and lifetime payments, no underwriting
- Single Premium Immediate Annuity (SPIA): Payments starting within 12 months, guaranteed1 and lifetime payments, no underwriting
- Multi-Year Guaranteed Annuity (MYGA): Fixed rate and guaranteed1 payments for a specific term, guarantee of principal
Contact Your Sage Consultant for Tax-Deferral Strategies
The point of all of this? Before agreeing to a lump-sum cash settlement, individuals involved in various litigation types should consider their full range of settlement options. If preferential tax treatment and guaranteed income are appealing, then your trusted settlement consultant can help explain each option's pros and cons to find the best fit. Contact us today.