By: Joe Di Gangi and Jeremy Babener

Plaintiffs with major medical needs are exposed to more risk, but also have many ways to make a settlement amount more valuable. Without increasing the defendant’s payout, plaintiffs can get “more” out of a settlement.

This article highlights three key areas, with examples. But there are many more. Perhaps the most important fact is that, usually, plaintiff lawyers can boost the value far more when you do so before clients sign the settlement agreement.

Cutting Taxes
Settlement proceeds are typically tax-free in most cases involving future medical care. That’s because the U.S. Tax Code exempts “damages…received…on account of personal physical injuries and physical sickness.” Section 104(a)(2). But there are at least three common paths to reduce tax, especially in large cases.

● Allocations. Plaintiffs will use their recovery to pay for their medical care in future years. But those expenses won’t be deductible. Allocations in the settlement agreement can maximize deductibility, cutting taxes owed on the plaintiff’s future investment income.

● Adding Nursing Claimants. Plaintiffs may pay a family member to provide nursing care. But that person will be taxed on the “income.” Instead, that person could receive the amount tax-free as a co-claimant if they have viable claims for “emotional distress” or “loss of consortium.”

● Adding Beneficiary Claimants. Estate and inheritance tax often applies to recoveries received by a former plaintiff when they pass. But both are avoided if a would-be beneficiary receives the amount as a co-claimant (again, if they have viable claims for “emotional distress” or “loss of consortium”).

Maximizing Public Benefits
Plaintiffs often need financial support beyond what their recovery provides, especially when they require future medical care. Public benefits and charities are critical on this front. There are many ways that plaintiffs can maximize these benefits.

● Special Needs Trusts (SNTs). SNTs are tailored trusts crafted to offer restricted flexibility while preventing deposited funds from reducing the beneficiary’s eligibility for need-based programs (e.g., Medicaid). For those under age 65, it’s often the best way to access settlement proceeds without eliminating essential need-based public services.

● Qualified Settlement Funds (QSFs). QSFs are typically formed as trusts, intended for short-term use (typically up to 12 months) to address settlement distribution matters while safeguarding public benefits. They’re particularly advantageous in cases involving nursing home settlements for plaintiffs over age 65, who are unable to establish a Special Needs Trust for long-term public benefit protection. The time and flexibility provided by QSFs is invaluable for planning “spend downs” to
preserve benefits, structured settlement designs to match life care plans, and boosting leverage for
those negotiating plaintiffs’ liens and Medicare reimbursements.

● Medicare Set Aside accounts. Future Medicare costs can reduce the net settlement amount for the injured plaintiff. Protecting Medicare's future interests can be costly, but it's essential for maximizing funds for other needs. The goal is to justifiably minimize future accident-related Medicare expenses Not all providers prioritize eliminating the need for Medicare Set Aside accounts, so be specific in discussions with evaluation providers.

● Charities. Charities also provide key benefits. For example, the Plaintiff Fund provides 1-on-1 support and benefits protection to plaintiffs who fundraise for medical expenses. Critically, it does so without jeopardizing their Medicaid and other need-based public benefits.

Securing a Stable Financial Future
Plaintiffs with significant medical needs generally face a lifetime of expenses. Designing a financial plan and investment strategy to meet those needs can be incredibly complicated. Funds must be available at the right time, but preserving liquidity typically lowers the rate of return. There are many good strategies to consider.

● Structured Settlements. Most trial lawyers know that structured settlements can provide a highly-tailored schedule of payments to a plaintiff. Often, the most important step in the process is to confidently predict the plaintiff’s future expenses and match them with guaranteed future payments from a structured settlement annuity.

● Life Insurance. Life insurance can provide invaluable protection for injured plaintiffs from worst case scenarios like the death of a primary care-taker. When properly designed, they also ensure that any children and other dependents are cared for, typically with tax-free income.

● Managed Finances. Many plaintiffs have little experience with significant expenses or managing assets. For them, it’s critical to develop a trusted relationship with a financial advisor and meet at least annually. Reviewing expenses in the aggregate makes a big difference.

● Spendthrift Trusts. Especially for minor plaintiffs, a spendthrift trust can make all the difference. That is, when the trustee is able to exercise healthy financial discipline. Balancing immediate and long-term needs can be terribly challenging when there are insufficient funds.

Referring Clients to Advisors
You first find professionalism and rapport. If they can’t connect with your client, they won’t be around for long anyway. But next, and harder to check, is their ability to spot and address the relevant issues. There are many excellent financial advisors. Just know that very few are also “settlement planners.” If they can casually and specifically answer your questions on tax, finance, and public benefits, you’re probably in good hands.

Joe Di Gangi is the President of ELANA Financial and a Former President of the Society of Settlement Planners. He has over 30 years of experience as a Certified Financial Planner and regularly works on settlement issues in cases across the country.

Jeremy Babener is the President of Structured Consulting. He specializes in settlement solutions and serves on the legal committees of the three national settlement planning associations. He previously served in the U.S. Treasury’s Office of Tax policy.