January 23, 2017 – As a post-settlement income planning specialist for more than 25 years, I have countless examples of situations where clients anticipating large sums of money improved their lives greatly by choosing to allocate some of their settlement proceeds toward a structured settlement arrangement.

If properly implemented, structured settlements pay future income that is 100% tax-free (if for a physical injury) or tax-deferred (if for certain nonphysical injuries), management fee-free and come with guarantees from companies boasting some of the best balance sheets in the financial services industry.

What’s not to like about safe, secure, tax-advantaged guaranteed income?

But while structured settlements have helped secure the futures of thousands of people over the past 40 years (and are still going strong despite the financial roller coaster ride many experienced during the past decade), sometimes people just decide cash is a better option. Often their reasoning is sound and they have better perceived uses for their settlement dollars.

But of all the reasons people give for rejecting a structured settlement option, there’s one that always makes me cringe:

“I have a friend who will help me manage my money.”

. . . Who Needs Enemies?

Sometimes clients really do have knowledgeable friends who can provide valuable advice.

But history is littered with stories of “friends” who end up going full-scale Bernie Madoff with other people’s money leaving hard lessons about trust and friendship in their wake.

Take last week’s story in the Orange County Register headlined “Woman gets year in jail for scamming investors, church members out of millions.”

Ever notice how some of best con artists notoriously hide in plain sight infiltrating organizations where people often feel most safe?

Because trust is exchanged so naturally where people with shared values, backgrounds and interests congregate (churches, country clubs, family reunions, alumni associations, Internet chat rooms, etc.), many never suspect the underlying nefarious motives of those seeking to do them harm.

When I read this story, I was reminded of a case I once worked on where Anthony (not his real name), a 19-year-old paraplegic with very specific future income needs who would have been well-served by a structured settlement, took his entire $1,900,000 recovery in cash because his mom said they had “friends at the church who cared about him” and had pledged to help.

Neither the church nor the “friends” were identified and I don’t know whatever became of Anthony. But I sure hope he wasn’t connected with the same church as these other victims listed in the Register article or one similar.

(NOTE: One of the victims mentioned was “a family friend who received money after suffering a personal injury,”)

Even in the best situations where people do have their funds properly managed, the impact of management fees, taxes and expenses often offset the value of any additional advantage clients seek to gain by investing themselves versus structuring part of their injury settlement recovery.

But trusting one’s future to “friends,” who often start showing up just about the time settlement negotiations are coming to an end, is a high-risk proposition that everybody is cautioned to be on guard against.

Like most things in life, a balanced approach to post-settlement injury income planning usually makes the most sense and leads to the optimum outcome.

That’s what a real friend would tell you anyway.