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STOP! Don’t Settle Without Taking These Steps

STOP! Don’t Settle Without Taking These Steps
Sage Settlement Consulting

If you are getting ready to settle an injury case, you may have forgotten a few crucial steps that could cost you, your firm, and your client dearly. Specific language needs to be included in the final Settlement and Release Agreement that allows you and your client to reap the full tax benefits of the settlement.

Constructive Receipt: Enemy of the Best-Laid Plans

If you or your firm takes constructive receipt of the settlement proceeds, then your injured client has lost the one time opportunity to place any of the money into an income tax-free structured settlement. While there are still opportunities to preserve your client’s settlement proceeds through different types of investments, the tax advantages available via a structured settlement are lost.

Here’s how to prevent this costly mistake:

  • Include language in the settlement agreement allowing your client to utilize a structured settlement
  • Include language in the settlement agreement allowing your client to select their own settlement consultant

Here is some sample language1 to include:

“Plaintiff will have the right to receive periodic payments using an annuity and/or market-based structured settlement programs. Such program(s) will be funded by defendant via wire transfer or check to the appropriate assignment company in exchange of a fully executed Settlement and Release Agreement and an Assignment document mutually agreed to by the parties. Plaintiff may work with the settlement consultant of their choice.”

But Wait: Don’t Forget to Protect Yourself!

Much like your client’s ability to structure their settlement proceeds, if you are interested in taking advantage of structured attorney fees, then you must include language in the settlement agreement. Again, in order to structure your fees, you must avoid taking constructive receipt of the funds and you have a one-time opportunity to choose to structure. Even if your client declines the opportunity to structure their settlement proceeds, you can still leverage the tax deferral benefits of structured attorney fees.

Here is some sample language1 to include:

“The Plaintiff authorizes and instructs payment to be made to his/her attorney as provided herein. Such amount shall be paid from periodic payments that otherwise would be payable to the Plaintiff pursuant to this agreement. The Plaintiff acknowledges and agrees that these payment instructions are solely for the Plaintiff’s convenience and do not provide the Plaintiff’s attorney with any ownership interest in any portion of the annuity or the settlement other than the right to receive the fee payments from the Plaintiff in the future as more specifically set forth herein. All the payments set forth herein constitute damages on account of personal, physical injuries, arising from an occurrence within the meaning of Section 104(a)(2) of the IRS Code of 1986 as amended. Plaintiff’s attorney may work with the settlement consultant of their choice.”

Contact Sage Settlement Consulting for Tax-Advantaged Settlement Options Today

For more information about structured settlement annuities, market-based structured settlements, and attorney fee deferral strategies, contact Sage Settlement Consulting today.

1 Specific language may vary by life company. Please speak with your settlement consultant to confirm that you have included the appropriate language before finalizing the settlement agreement.
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