Making your settlement last

The longevity of the settlement is the primary priority. Many factors will affect this, including inflation, life expectancy, and investment returns. Here, we will look at steps that can be taken to improve settlement longevity:

Step 1 – Planning

• Understand what it means to be an investor
• Develop a financial plan focusing on the most important priorities
• Select a team of advisers
• Determine attitude to investment risk

Step 2 – Assessing

• Determine monthly outgoings and ascertain how long income will be needed for
• Adjust expenditure to ensure the settlement lasts for the recipient’s life
• Seek advice regarding tax, inflation and investment return
• Determine affordability of property, including modifications and maintenance costs

Step 3 – Adjusting

• Accept that financial decision-making will always be a part of life
• Enhance financial understanding, specifically in relation to investment risk and tax positions
• The ‘aha’ moment during this final step is knowing exactly how long the financial settlement will last

As the financial situation becomes more transparent, it is possible to relax a little, no longer consumed by the worry the financial settlement initially brought.

Reacting to the settlement

Adjusting to the settlement can be difficult. Not all recipients respond in the same way, but in my experience, pursuers react in one of three ways:

Acceptance:

• Some view the settlement with openness. They view the hurt separately and hold no grudge on the money. Recipients enjoy the benefits of the money, even if it does not lessen the pain endured, without the negative emotions that plague others.

Conflict:

• Some recipients cannot disconnect the money from the injury, which creates feelings of anger, sadness or guilt. Things they have purchased with settlement monies, such as a new house, constantly remind them of the injury.
• Time and distance from the injury can help alleviate some of the conflict. Some choose to donate money to charities connected to the injury they have experienced. Others may benefit from speaking to a life transitions coach to separate the pain from the money.

Rejection:

• Some recipients try to separate themselves from the money. They are in so much pain that they cannot process the emotion which stems from the money. This can result in excessive gifting, reckless spending or taking excessive risk.
• The advantages of establishing a Trust are evident here. Part of the trustees’ role is to ensure funds are appropriately spent. Many find the support of trustees a great comfort as they act as a physical and psychological barrier and help reduce the pressure of financial decision-making

Emotional clarity about the money will not come overnight – but the sooner issues are addressed, the sooner a healthy relationship with the money will be formed.

Common concerns

Awaiting a substantial sum:

• Pursuers may begin to shift their life and finances in anticipation if a win is expected. Be prepared to either not secure a settlement or be awarded less than initially expected. Until the money is physically awarded, assume the case is far from won. This avoids dwelling on ‘what if’ scenarios.

Length of litigation process:

• Think marathon, not sprint. Expect the case to take longer than expected. I have clients who have waited years for a successful resolution.

What is a structured settlement:

Instead of receiving the settlement as a single lump sum, a structured settlement provides a reduced lump sum with an annual income over the recipient’s lifetime.

Structured settlements have several advantages:

• Long-term security
• Tax-free
• Guaranteed payment – regardless of economic conditions, unlike investment returns
• Indexed in line with care costs

Disadvantages:

• Only a proportion of the award is immediately accessible. This makes it more difficult to pay for large, one-off expenses.
• An invested lump sum may produce a higher long-term return.

Conclusions

Change offers us the opportunity to discover something new about ourselves, our relationships and our choices. A rich experience comes with change, and if we embrace it and all its possibilities, wonderfully positive, transformational things can happen. Even circumstances that are unbearably painful can lead to something good. My hope is that this piece will better enable pursuers to navigate this transition, starting from a position of pain and loss but ultimately feeling comfortable in their situation.

A copy of A Guide To Managing Your Financial Settlement can be purchased from Amazon

This article was originally published in PI Focus Magazine for The Association of Personal Injury Lawyers (September 2022).

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