Estate Planning Aspects of Structured Settlements

• Publication year: 1987
• Pages: 1969
• Citation: Vol. 15 No. 9 Pg. 1969

15 Colo.Law. 1969 Colorado Lawyer 1987.

1987, November, Pg. 1969. Estate Planning Aspects of Structured Settlements

---

1969

Vol. 15, No. 9, Pg. 1969

Estate Planning Aspects of Structured Settlements

by Michele Whitmore and Ronald D. Rome

Column Editor's Note:

There has been an increased interest in structured settlements as a means of settling tort claims. This interest has created a need for the tort litigation attorney to have a basic knowledge of advantages and disadvantages of structured settlements. The following article is intended to assist attorneys in understanding the potential future effect of a structured settlement in the advisement of their clients.

Because structured settlements are adaptable to a variety of claims involving money damages, this method of settlement is gaining increased acceptance by claimants and their legal counsel. Settlement is paid out in a series of installments rather than in a single lump-sum. This arrangement eliminates the dissipation of funds that occurs with the majority of traditional lump-sum payments.

In addition to providing a secure, tax-free income(fn1) to the claimant and his or her dependents, the defendant is provided the opportunity to offer a claimant a larger settlement at a lower present-day cost. Expedient settlement can reduce the expense of protracted litigation, trial and its adverse publicity, as well as the potentially high-risk jury verdict against the defendant.

Benefits are normally funded by the purchase of a life insurance single premium immediate annuity or through a trust of government or government-backed securities, hereafter referred to as a treasury trust. These vehicles offer safety of principal as well as the flexibility necessary to tailor each settlement to the claimant's needs. Great attention should be given to ensure programs are designed and purchased with the claimant's future in mind.

Estate Planning Considerations

An element often neglected by claimant's counsel is the impact of the structured settlement on the client's estate. As a result of such an agreement, claimants often have an estate to plan---certainly from a dispositive point of view and possibly from a tax standpoint.

A will or a trust (or both) is the vehicle most commonly used to dispose of property at the time of death in accordance with a client's wishes. Assuming a non-taxable estate, a simple will may be sufficient if the client has no children or if the client's children are sufficiently mature to receive an estate outright. A will and trust combination should be considered if the client has immature children or if the net estate of the client and the client's spouse is large enough to incur federal estate tax, that is, $600,000.(fn2)

If the net estate of the claimant and the claimant's spouse exceeds the taxable amount mentioned above, counsel and claimant should discuss the utilization of vehicles (as part of or in conjunction with the structure) that will provide estate tax reduction benefits. Such vehicles might include a marital and family trust arrangement(fn3) and an irrevocable life insurance trust.(fn4)

Counsel should be particularly sensitive to estate planning considerations when the amount of a structured settlement...