The need for and use of cash changes dramatically during the time immediately following settlement. Therefore, determining how best to administer cash assets after a settlement or verdict is a vital step toward establishing lifelong financial security. It is only after resolving debt and making major purchases—such as a house—that setting goals, building budgets, and evaluating suitable investments can occur. The process of finding a safe and secure financial position ("Safe Harbor") for claimants will alleviate much of the stress associated with making premature investment decisions with your settlement money.
Safe Harbor Planning
During a period of change, clients benefit from having a place to temporarily deposit their money. Upon the settlement of a case, plaintiffs often find themselves in a situation of continued uncertainty while budgets settle in and major purchases are completed. After anxiously waiting a long period of time to receive one’s settlement money, how you choose to pay off debt, purchase a new home, replace an old vehicle, gift money to family, or plan for your death can negatively impact your future taxes and can impact your long term financial security. Let Forge educate you on your choices and the potential negative ramifications of poor decisions during this phase of the settlement planning process.
Other concerns may revolve around additional needs for health care identified in a Life Care Plan or Medicare Set-Aside, and new living expenses stemming from a claimant’s injury. Having a cash management strategy in place can eliminate some of the worries of where to invest settlement money in a short to mid-term time horizon.
A registered investment advisor can help you place funds into insured accounts, choosing a mix of money market funds, certificates of deposit, and short-term liquid investments. This can allow you to earn interest on his or her settlement while at the same time securing the availability of money for disbursements through Electronic Funds Transfer, check writing, and debit card access. Let us introduce you to a wealth manager who understands these needs due to a history of helping similarly situated clients over the past several years.
Lastly, the financial providers we work with for cash management accounts hold funds with some of the largest national financial institutions. These relationships provide quick access to funds and a level of privacy that is unobtainable sometimes with local solutions.
Structure as an Asset Class
If you currently work with a financial advisor, let us help them understand that claimants in personal injury cases are presented with a unique opportunity to access an asset class that is unavailable to the traditional investor. The U.S. Congress amended the federal tax code in an effort to encourage personal injury, workers compensation and wrongful death claimants to structure their settlements by explicitly providing that any money received on account of a personal physical injury through a structured settlement annuity is 100% exempt from income taxation. This exemption includes both the original amount invested and any interest earned on it over time. The combination of security and tax-exempt status and the ability to achieve investment yields that are typically associated with far riskier investments makes the structured settlement a key component of any settlement plan. Financial advisors are often unaware of this option and neglect to take it into account when developing the most suitable financial plan.
Backed by the highest-rated life insurance companies in the marketplace, structured settlements are a low-risk investment option, similar to that of treasuries or municipal bonds. However, in today’s market the returns are much higher than those of comparable low-risk investments. Furthermore, the structured settlement neither reacts to market fluctuations, nor does it fall prey to ongoing fees and expenses that are often associated with a wealth management account. By replacing some or all of your fixed-income investment allocation strategy with a structured settlement annuity, you can eliminate the managed fees and expenses associated with this portion of an actively managed portfolio, which in turn increases the overall performance of an investment plan.
Many financial advisors may not be aware of the opportunity to participate in this special asset class, therefore, because a structured settlement must be put in place at the time of settlement, it is important to make sure the advisor is made aware of this valuable option as soon as possible. This will allow the adviser to employ periodic payments in developing a financial plan that is best suited the situation. Forge Consulting can assist in creating a relationship with a trusted financial adviser so as to provide an injured person and his or her family with the financial security they need.
For more information on how Forge can assist you with your cash management needs, please call 866-68-FORGE (866-683-6743).