Workers Compensation and Structured Settlements
DonMcNay
Reprinted from the January-February, 1995 Edition of the Kentucky Academy
of Trial Attorney’s Advocate
Structured Settlements in Kentucky Workers Compensation Cases
By Don McNay, CLU, ChFC, MSFS
Structured settlements have been a popular concept in personal injury law
for the past 15 years. There are occasions when structured settlements can
also be utilized effectively in workers compensation settlements.
A structured settlement is an alternative to a lump sum cash payment. It
usually consists of two parts, an up front cash payment and a series of
future payments funded by an annuity. For example, Instead of settling a
claim for a $100,000 lump sum, you might settle instead for $20,000 up
front and $750 a month for life.
When set up properly, all payments are tax free to the injury victim.
Some common workers compensation sceanarios in which structured
settlements can be used are cases where a lump sum is inappropriate, cases
where medical expenses are stable and ongoing, total disability awards and
lifetime awards, cases where claimants are receiving government benefits,
cases where a plaintiff wants additional security from an individual self
insured and cases where a severely injured worker has a reduced life
expectancy.
1. Cases where a lump sum is inappropriate
A Stanford University study showed that 90% of all lump sums are
dissipated within five years. This is particularly true in cases where the
people awarded the money are financially unsophisticated.
Since many disabled claimants who waste a lump sum are prime candidates
for welfare or public assistance, there is a societal benefit in making
sure that a claimant has a regular income.
It is often true that the statutory award will not meet a claimants
individual financial needs. In those cases, a structured settlement can be
utilized.
A structured settlement can be used in conjunction with a lump sum or by
itself, in order to produce a settlement that best meets an individuals
circumstances. For example, a person who receives an award of $200 a week
for 425 weeks might settle for any of the following scenarios instead:
1. $860 a month for 100 months.
2. $750 a month for 10 years.
3. $40,000 lump sum and $500 a month for five years.
4. $450 a month for life (male age 47).
2. Cases where medical expenses are stable and ongoing
There are situations where a claimant will have ongoing medical expenses
on a regular basis. A structured settlement gives the opportunity to
settle the claim and allow for the claimant to receive regular payments.
For example, if it is fairly certain that a person will be needing $500 a
month in medical expenses for the rest of his life, an annuity can be
purchased to make those payments.
3. Death cases, totals and lifetime awards
When it is fairly certain that a maximum payment will be made, a
structured settlement might be used to settle the case.
Cases where an employee has little or no likelihood of returning to work
or benefits ending lend themselves to structured settlements. Death
benefits for juveniles and widows are excellent candidates for the
structured settlement concept.
4. Maximizing Government Benefits
In situations where a victim is receiving social security benefits, it is
usually in the victim's best interest to wrap his workers compensation
payments around the social security payment, so that there is not an
offset of social security.
An article in the March, 1994 edition of Trial Magazine said that 1400
people nationwide had their social security cut off completely by a
workers compensation award and 130,000 had their social security payments
reduced by more than $350 a month. The authors assert that their attorneys
could be liable for malpractice by not attempting a negotiated offset.
A structured settlement can be used to fund the maximum amount of
compensation available without an offset. There can also be an extra
incentive for the plaintiff such as a lump sum deferred to when the
claimant draws social security retirement.
In certain situations, a Medicaid Trust can be effective in protecting the
claimant’s government benefits.
5. Additional Security for the Plaintiff
In recent years, Kentucky has had situations where an individual self
insured company has run into financial difficulties and been unable to
meet its workers compensation obligations. If a claim is settled using an
assigned structured settlement annuity, the payments to the claimant will
be secure, regardless of the financial condition of the self insured
company.
6. Reduced Life Expectancy
Many injured workers have reduced life expectancy. Therefore an annuity
can be purchased that will give that worker a larger benefit than someone
of the same age with a normal life expectancy. The structured settlement
should be looked at any time someone with a reduced life expectancy is
considering a settlement.
For example, in a recent case, a person who was 42 years old had the rated
age of a 60 year old. This allowed the purchase of an annuity for $400,000
to fund his maximum lifetime payments, when it would have cost $600,000 at
his normal age.
Conclusion:
Structured settlements are an often overlooked tool in settling workers
compensation cases. They can help settle a case where a lump sum or
statutory award is inappropriate.
Don McNay is the owner of McNay Financial Services in Lexington, Ky. He is
a nationally known expert in the field of structured settlements and
annuities. McNay can be reached at 444 E Main, Suite 108, Lexington, Ky.
40507 or DonM...@aol.com