Structured Settlements Settlement Planning and Needs Analysis 1 — Questions and Answers
Question 1: What is a 'needs analysis' in the context of structured settlement planning?
- An IRS audit of the claimant's income needs
- An assessment of the claimant's current and future financial, medical, and lifestyle needs used to design an appropriate payment schedule (Correct answer)
- A defendant's financial analysis to determine settlement capacity
- A court-ordered financial review of the claimant's assets
Correct answer: An assessment of the claimant's current and future financial, medical, and lifestyle needs used to design an appropriate payment schedule
A needs analysis evaluates the claimant's immediate cash requirements, ongoing living expenses, medical costs, and long-term financial security to tailor the structured settlement payment schedule.
Question 2: Which of the following is a primary consideration when designing a payment schedule for a catastrophically injured claimant?
- Maximizing the defendant's tax deduction
- Ensuring sufficient funds for lifetime medical care, rehabilitation, and living expenses (Correct answer)
- Minimizing the number of payment periods
- Investing the settlement in equities for growth
Correct answer: Ensuring sufficient funds for lifetime medical care, rehabilitation, and living expenses
For catastrophically injured claimants, the payment design must cover projected lifetime medical costs, attendant care, and living expenses, often requiring large and long-duration payments.
Question 3: What is a 'life care plan' and how is it used in structured settlement planning?
- An insurance product that covers end-of-life expenses
- A comprehensive document prepared by a life care planner that projects the claimant's lifetime medical and support costs, used to size the structured settlement (Correct answer)
- A legal document naming guardians for a minor claimant
- A retirement planning document for injured workers
Correct answer: A comprehensive document prepared by a life care planner that projects the claimant's lifetime medical and support costs, used to size the structured settlement
A life care plan is a professional assessment of the claimant's future medical, therapeutic, and attendant care needs and costs, which directly informs the amount and timing of structured settlement payments.
Question 4: Why might a claimant prefer increasing payments over level payments in a structured settlement?
- Increasing payments are always tax-free, while level payments are taxable
- Increasing payments help offset inflation and rising medical costs over time (Correct answer)
- Increasing payments require no annuity contract
- Increasing payments reduce the cost to the defendant
Correct answer: Increasing payments help offset inflation and rising medical costs over time
An increasing payment schedule (e.g., with a 3% annual COLA) helps ensure that the purchasing power of the payments keeps pace with inflation and anticipated rising costs.
Question 5: What is the role of a 'plaintiff's attorney' in a structured settlement negotiation?
- To underwrite the annuity contract
- To advocate for the client's best financial interests and advise whether a structured settlement is appropriate and fairly priced (Correct answer)
- To serve as the qualified assignee
- To calculate the annuity's rated age
Correct answer: To advocate for the client's best financial interests and advise whether a structured settlement is appropriate and fairly priced
The plaintiff's attorney has a fiduciary duty to advise the client on all settlement options, ensuring the client understands the long-term benefits and limitations of a structured settlement.
Question 6: What is the significance of a 'future medical expense' component in a structured settlement?
- It is always taxable as ordinary income
- It provides dedicated funding for ongoing medical costs, ensuring the claimant does not have to use general living funds for healthcare (Correct answer)
- It requires a separate annuity contract from the living expense component
- It must be approved by Medicare before being structured
Correct answer: It provides dedicated funding for ongoing medical costs, ensuring the claimant does not have to use general living funds for healthcare
Structuring a portion of the settlement for future medical expenses ensures that healthcare costs are funded separately, protecting against the risk of outliving the settlement's living expense component.
Structured Settlements Settlement Planning and Needs Analysis 1
What is a 'needs analysis' in the context of structured settlement planning?