Post-Settlement Strategies for Clients with Smaller Settlements
September 9, 2021
Evelynn S. Passino, Esq., Executive Director
The reality of many settlements is that the recovery is simply not sufficient to meet the client’s future needs. Whether it is due to low policy limits, large liens, or bad circumstances, it is not always possible for the client to get what they truly deserve. The possibility that someone will run out of money because there just was not enough to begin with is a challenge we encounter often, but there are some strategies which can be used to make the most of what is recovered.
Maximizing the Recovery
The first step is to make the net recovery to the client as big as possible. Post-settlement, this can be done in large part through aggressive lien resolution techniques. Many attorneys handle this themselves, but keep in mind there are companies specializing in this kind of work who can get great results, usually charging a small percentage of savings for their work.
Structured settlement annuities, in the right circumstances, can also be used to increase the amount of money actually paid to the client and stretch payments out over a long period. If the client will never work again or work at a reduced capacity, then an annuity can be used to guarantee regular income, perhaps for the rest of the client’s life, or it can make larger, less frequent payments to the client or to a trust. It is important not to “over structure” by putting too much into an annuity, leaving too small an amount for larger expenses, like buying a home and medical procedures that may not be covered by insurance or other benefits.
Planning for the Future
Once the net recovery is finalized, the focus shifts to making the most of it. This is done through a combination of planning and leveraging any programs or services for which the client qualifies. It may be helpful to have a life care plan completed so that all needs are identified if this was not done prior to settlement and the client’s ongoing needs are complex.
The client may already be on government benefits programs offered by the Social Security Administration and/or Medicaid, but that may not be all that they qualify for. Every state has a variety of community-based and waiver programs for which the client may not even know to apply. You can find out about these programs by working with a planner or attorney who specializes in special needs clients, or engage the services of a local care manager. Care managers can also assist with planning for additional needed services and stabilizing any immediate medical issues. There is typically cost associated with getting this type of advice, but it is an investment that the client should make while they still have the money to do so.
If the client is considering forfeiting their benefits and purchasing insurance, it is helpful to run the numbers on what the costs of private insurance will actually be, help the client estimate how long their recovery will last, and how long the recovery would last if they kept their benefits. They may be surprised to learn how much these benefits help them bridge the gap. This is particularly important if long-term skilled nursing care is anticipated because Medicaid provides this coverage while Medicare does not.
Depending on the amount of money available, it may be advisable to utilize a pooled special needs trust (PSNT). PSNTs are typically used in cases when the client needs to qualify for government benefits, and the recovery is too small for private banks to serve as trustee, although there is no limit on the amount of money that can be deposited into a PSNT. The trustees of PSNTs are experienced in public benefits issues and can help the client plan and manage their recovery for as long as needed. All PSNTs are administered by a charitable organization and may provide or can connect the client with the services needed to obtain care.
A vital part of planning includes prioritizing short and long-term cash needs, especially if the client will use a “spend down” plan. Spending down the money is the process where the client buys excluded resources, such as a home, items for the home, or a vehicle, in order to continue qualifying for government benefits. The money should be spent in the way that yields the most long-term benefits. Securing shelter and reliable transportation are usually high on the list, but it is important to make sure the client is planning for maintenance costs as well. Buying a home or vehicle will not do the client any good if they are not able to manage ongoing costs, like insurance, taxes, and upkeep. It may be helpful to use an ABLE account (if the client qualifies) for these kinds of expenses. ABLE accounts protect public benefits like a special needs trust, but are generally lower in cost, controlled by the client, and easily set up online. They can also be used for wider range of purchases than PSNTs. There are limitations (the account holder must have been disabled before age 26 and only $15,000 can be contributed per calendar year), but this can give the client another way to save for future expenses and fundraise (if necessary) while remaining qualified for public benefits. If the client is working, they can contribute more than $15,000.
We often work with clients who got a modest recovery but have received more money than they ever thought they would have, and they have the perception that the money will last forever with little to no management. This is a particularly dangerous way of thinking for those who have long-term medical needs and may never work again. It is completely understandable that after a person has been through an injury, and perhaps litigation, that they would be ready to relax and enjoy themselves. Clients should understand that spending money with that mindset is ok so long as there is an eye to the future.
Helping a client with a smaller settlement plan for the future is a challenge. Not every case will result in an outcome that ensures the client’s needs are met for life, but with some work and planning on the front end, they can make the best of what they have recovered for their injuries.