Personal Injury Settlements

Settlements in personal injury cases are meant to compensate the injured person(s) for harm they have sustained and will likely suffer. The settlement itself, however, must be thoroughly considered and evaluated so that it meets the best interests of the client.  Settlements can be pretty basic, but they can also be extremely complicated.  A true personal injury settlement (as of writing of his post) is not considered “income” under IRS regulations and therefore not taxable.  [Please note that some settlements, such as in breach of contract and/or employment type cases, could be considered “income” under IRS regulations, thus are completely or partially taxable.]  While a true personal injury settlement may not be taxable, receiving a single lump sum payment may not be the best course of action for the plaintiff.  If the plaintiff is going to be receiving a significant settlement sum, careful thought must be placed into obtaining an annuity or special needs trust.  Annuities are excellent products (for the right person and under the right circumstances) to have a client’s money gain significant interest over time, thus resulting in an overall larger settlement.  The drawback is that the money gets paid out over time and it is difficult to obtain those moneys in times of emergency without “selling” the annuity at a substantial discount to a third party.  Another consideration in a significant settlement recovery is the potential loss (either completely or partially) of government benefits such as welfare type assistance and/or government medical benefits.  If a loss of benefits is a possibility, a special needs trust is usually the way to go.  These are just a few of the considerations in evaluating settlements and how best to protect personal injury victims.