When you settle your injury case, you will be presented with two options: a lump sum cash settlement or a structured settlement.  With a structured settlement, you agree to accept your settlement money in periodic installments (usually monthly) over a specified duration of time, i.e., 20 years or lifetime benefits.

What are the advantages of a lump sum cash settlement?

The advantage of a lump sum cash settlement is that you control your money and how it will be invested or spent, i.e., if you have a medical emergency and need a substantial sum of money, you can access as much money as you need.  You have the freedom to take as much, or as little, risk as you want when investing your money.  If the stock market rises 65% as it did in 2009, you stand to cash in.  Sounds pretty good, right?  Not so fast.

The disadvantage of a lump sum cash settlement is that you control your money and how it will be spent. I tell my clients that 95% of them will lose all of their money within 5 years of their settlement and THEY NEVER BELIEVE ME!  The usual response is, “Okay, but I will never do that.” Guess again! Virtually all of my clients are financially unsophisticated and have no experience managing large sums of money and making things worse, every friend you’ve had since grade school will come out of the woodworks asking for your money.

While you will never believe this, it is a virtual certainty that you will lose all of your money within five years of your settlement if you take a lump sum cash settlement. With the exception of a few select clients (you know who you are), a lump sum cash settlement is rarely a good idea for disabled persons.

What are the advantages of a structured settlement annuity?

Today, there are very few advantages of a structured settlement annuity.  The interest rate on a 10-year Treasury bill just fell below 2% and many annuities are paying annual rates of return less than 1%.  Given the annual rate of inflation has been 4.43% over the last 25 years, you are actually losing the earning value of your money by accepting a structured settlement annuity (there is a big exception for disabled persons who get a substandard rated age by the annuity issuer, i.e., a 4 year old with a life expectancy of 10 years).

So, what can you do?  Lump sum cash settlement or a structured settlement annuity?  Neither is a good option for most injury victims.

A “Preservation Trust” is the answer for many disabled persons

What is a “preservation trust”?  Instead of taking a lump sum cash settlement or placing your money in a structured settlement annuity, you have a much better option: placing your settlement money in a preservation trust.

A preservation trust is designed to provide you with monthly benefits over the duration of your life while giving you the ability to access the funds in the event of an emergency, such as a operation for an unexpected medical condition or tuition and living expenses for college or graduate school.

You do not have the right to access the funds in a preservation trust with the exception of medical emergencies, academic expenses and a down payment for your first home or car.  Hence, the trust will protect you from spending your money on fancy cars, big screen TVs and trips to the Caribbean.

Even better, you can invest your settlement money in a preservation trust in mix of stocks and bonds and thus give you a much better return on your investment (at least most of the time) than a structured settlement annuity.  You will not be locked into a 1% or 2% annual rate of return that structured settlement annuities are offering.  With a conservative mix of stocks and bonds, you limit your risk during turbulent economic times (now!).

With a decent rate of return on your investments, flexibility to access your money when you need it, and preservation of capital for the lifetime of the disabled individual, a preservation trust is usually the best option for disabled persons.

If you have questions, here’s what you can do

If you want more information about a preservation trust, I welcome your phone call on my toll-free cell at 1-866-889-6882 or you can send me an e-mail at jfisher@fishermalpracticelaw.com   You are always welcome to get my monthly newsletter, Your Malpractice Insider (it’s free!), by sending me an e-mail with your full name and mailing address.