Large Personal Injury Settlement

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cockersx3
Posts: 160
Joined: Sun Apr 17, 2016 3:55 pm

Re: Large Personal Injury Settlement

Post by cockersx3 » Wed May 16, 2018 7:25 pm

Agree with the posts for OP to slow down. It's not a race. It doesn't seem like that now, but in six months to a year having that seven figure amount will just be a perfectly normal thing. Once you get to that point and have had PLENTY of time to think things over, *then* start making decisions about how to invest the cash.

Assuming that the other driver's insurance has agreed to a settlement, the only decision that really needs to be addressed now is whether or not OP wants to do a structured settlement or not - ie whether OP wants some (or all) of the settlement as an annuity, or if the OP wants the settlement balance all as one big check (less all the lawyers fees and reimbursements to health insurance). This is because structured settlements need to be written into the settlement agreement to preserve the (likely) tax-free nature of the transaction. Wondering if OP's attorney has brought this up yet?

If the structured settlement decision has been made - I would deposit the money in the bank once settlement is in hand, pay off all existing bills, and try to forget about the money for at least 6 months before making any decisions about it. This includes who will manage it. Not sure if OP is going with financial advisors provided by OP's attorney or if OP has shopped around on his own. In my case, the attorney recommended me to "someone his firm works with all the time," and the process was presented as a perfectly normal thing. Ultimately I directed attorney how to disburse funds and never contacted the FA once I got the check. Smartest move I made in the whole process TBH. Saw that OP is reading the Bogleheads Guide to investing, which is a great sign - best book I ever read on investing, and this info will enable OP to do this himself and avoid the FA entirely.

In any event - that 0.125% fee seems strangely low. No way would I trust that number, doesn't matter how much assurance I had from someone.

Also, I agree with advice to get good health insurance. Op will have to pay for all future medical costs associated the injury, so getting health insurance will ensure that OP pays the health insurance's negotiated rate. I would also avoid telling any future hospital that treatment is the result of an accident, otherwise providers will attempt to balance bill him for the difference between their rack rate and the HI's negotiated rate. Other than the doctors themselves, it's nobody's business how the injury occurred. I would encourage OP to read up on the ACA (assuming in US) and how the premium / cost sharing subsidies are affected by **taxable income**. With this settlement, it is very possible that OP's taxable income going forward will be very small and potentially in ACA range, which will potentially save a lot of money.

shulgin
Posts: 16
Joined: Mon May 14, 2018 9:55 pm

Re: Large Personal Injury Settlement

Post by shulgin » Wed May 16, 2018 9:44 pm

cockersx3 wrote:
Wed May 16, 2018 7:25 pm
Agree with the posts for OP to slow down. It's not a race. It doesn't seem like that now, but in six months to a year having that seven figure amount will just be a perfectly normal thing. Once you get to that point and have had PLENTY of time to think things over, *then* start making decisions about how to invest the cash.

Assuming that the other driver's insurance has agreed to a settlement, the only decision that really needs to be addressed now is whether or not OP wants to do a structured settlement or not - ie whether OP wants some (or all) of the settlement as an annuity, or if the OP wants the settlement balance all as one big check (less all the lawyers fees and reimbursements to health insurance). This is because structured settlements need to be written into the settlement agreement to preserve the (likely) tax-free nature of the transaction. Wondering if OP's attorney has brought this up yet?

If the structured settlement decision has been made - I would deposit the money in the bank once settlement is in hand, pay off all existing bills, and try to forget about the money for at least 6 months before making any decisions about it. This includes who will manage it. Not sure if OP is going with financial advisors provided by OP's attorney or if OP has shopped around on his own. In my case, the attorney recommended me to "someone his firm works with all the time," and the process was presented as a perfectly normal thing. Ultimately I directed attorney how to disburse funds and never contacted the FA once I got the check. Smartest move I made in the whole process TBH. Saw that OP is reading the Bogleheads Guide to investing, which is a great sign - best book I ever read on investing, and this info will enable OP to do this himself and avoid the FA entirely.

In any event - that 0.125% fee seems strangely low. No way would I trust that number, doesn't matter how much assurance I had from someone.

Also, I agree with advice to get good health insurance. Op will have to pay for all future medical costs associated the injury, so getting health insurance will ensure that OP pays the health insurance's negotiated rate. I would also avoid telling any future hospital that treatment is the result of an accident, otherwise providers will attempt to balance bill him for the difference between their rack rate and the HI's negotiated rate. Other than the doctors themselves, it's nobody's business how the injury occurred. I would encourage OP to read up on the ACA (assuming in US) and how the premium / cost sharing subsidies are affected by **taxable income**. With this settlement, it is very possible that OP's taxable income going forward will be very small and potentially in ACA range, which will potentially save a lot of money.
Thanks for taking the time to write such a detailed post. I opted not to do a structured settlement. I believe I can get a higher return managing the money myself instead of being stuck with 4% a year gains. Inflation eats that up quickly. My lawyer suggested it, citing many people my age would hastily lose most of the money, but Im confident with the advice I can gather here I can avoid making those pitfalls. In my state, even taking the lump sum is tax free and I plan on parking the majority of that in Vanguard. This seems like the best place for diversification and large amount of individual holdings in each index. Seems like the most tax efficient and suitable investment for my purposes. Once I begin to travel internationally I will place a fraction of the sum in a Schwab checking account to take advantage of their ATM withdrawals and currency exchange fees. I have been shopping around with financial advisors to see how the industry was. I came to the conclusion of many people on this site - Not worth the fees. I mistook the rate, it was actually .8% . Sorry for the confusion and misinformation, heard wrong on the phone call.

Do you mind explaining more in depth this balance billing you are referring to? I will look up the premium / cost sharing subsidies

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djpeteski
Posts: 579
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Re: Large Personal Injury Settlement

Post by djpeteski » Thu May 17, 2018 7:26 am

shulgin wrote:
Wed May 16, 2018 9:49 am
djpeteski wrote:
Wed May 16, 2018 5:44 am
Do you plan on returning to work? At your age you have to have something that fills your life.
Yes, I am planning on continuing to create income. I have been out of work for more than 6 months now, and I'm itching to be able to get out of the house and start doing normal things again. Life gets too boring without some goals, achievements, and growth.
Excellent. Either by education or training I would select a career that you would really find rewarding. Backed up by this money you can really do something that you like very much. Don't go crazy on getting an education, but I would invest in yourself by obtaining an education in an area of your desire. It is likely the best investment you can make and I would avoid most private institutions. At least the ones that provide a "fast" education.

In comparison to you, my disability is very minor. My left foot is paralyzed. Yet at 50 years old I undertook the sport of triathlon. I would encourage you to participate in some kind of physical activity. It will help fulfill your life, make you healthier, and you can be an encouragement to others.

bsteiner
Posts: 3390
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Large Personal Injury Settlement

Post by bsteiner » Thu May 17, 2018 8:04 am

shulgin wrote:
Wed May 16, 2018 9:44 pm
...
I opted not to do a structured settlement. I believe I can get a higher return managing the money myself instead of being stuck with 4% a year gains. Inflation eats that up quickly. My lawyer suggested it, citing many people my age would hastily lose most of the money, but I'm confident with the advice I can gather here I can avoid making those pitfalls. In my state, even taking the lump sum is tax free and I plan on parking the majority of that in Vanguard. This seems like the best place for diversification and large amount of individual holdings in each index. Seems like the most tax efficient and suitable investment for my purposes. Once I begin to travel internationally I will place a fraction of the sum in a Schwab checking account to take advantage of their ATM withdrawals and currency exchange fees. I have been shopping around with financial advisors to see how the industry was. I came to the conclusion of many people on this site - Not worth the fees. I mistook the rate, it was actually .8% . Sorry for the confusion and misinformation, heard wrong on the phone call.
...
The benefits of the structured settlement are that the "interest" element of the payments is tax-free and it protects you against foolishly dissipating the money (though that's within your control).

The disadvantages of the structured settlement are that it's inflexible, it's not diversified (though if you do it for only a portion of the settlement you may be able to diversify around it), the expenses (they're hidden, but the insurance agent and the insurance company have to get paid), and the fact that investment income is favorably taxed (qualified dividends, long-term capital gain, capital gains aren't taxable until you sell, and if it's appropriate in your tax bracket you can buy tax-exempt bonds).

Most people who participate in this group are able to invest their money in a reasonable way and won't foolishly dissipate their money.

JW-Retired
Posts: 6823
Joined: Sun Dec 16, 2007 12:25 pm

Re: Large Personal Injury Settlement

Post by JW-Retired » Thu May 17, 2018 10:23 am

shulgin wrote:
Wed May 16, 2018 9:49 am
Thanks a lot for your guys' analysis. I read the firms ADV part 2 form and I was wrong about their fee. I must have misunderstood on the phone and heard 1/8 of as percentage instead of .8%. How embarrassing. When I went into the meeting with the advisors, I think I brought the number up a couple times and they had the chance to correct me. They must have misunderstood as well.
They didn't misunderstand anything. A high percentage of these "advisors" are just very practiced at concealing their fees if at all possible. Kudos for reading the ADV part 2 form on your own! :beer

And I wouldn't be sure you know all their fees yet! If nobody has recommended William Bernstein's investing mini-book yet, get it and take what he says about "advisors" to heart. It's a free pdf file and a quick read. Also cheap on Amazon if you want a kindle or hard copy.

https://www.etf.com/docs/IfYouCan.pdf
JW
Retired at Last

david
Posts: 152
Joined: Thu Jan 03, 2013 12:39 am

Re: Large Personal Injury Settlement

Post by david » Thu May 17, 2018 10:53 am

shulgin wrote:
Tue May 15, 2018 7:50 pm
I'm still deciding how to divy everything up. 3 million isn't a whole lot in today's day and age, but I have a large advantage being so young. I aim to use some of it to start a business, a part to invest in real estate, so I have some consistent income in a down market, and the majority of it in a diversified, global portfolio. I'm not going to use it for living expenses if I can help it, just to create more passive income. A chunk of it will be allocated for my sisters' college (twins just turned 13) and a car for each of them once they are of age. If I choose to continue on with college I will use part of the money for that, but I'm not aiming to go to a super expensive school, I have been going to community currently.

I would say I am at an intermediate level for investing, but I feel like the .125% fee I would be paying for the financial advisors would be outweighed by the assistance they can provide. You make a fair point with the costs I will be incurring in the future. This is why I want to build some consistent income into my portfolio so I never have to worry about being covered. I will be keeping this close to home and only helping very immediate family, or family in my original eastern european country, where a small boost in income would help them survive a lot.
You seem to have a couple of different strategies. Why do you need it to generate passive income if you aren't using most of the money? Growth of the investment itself (without paying you dividends) is more tax efficient. People really like the idea of passive income, but you can turn any portfolio into an income generating one by selling assets. Total return is more important than, for example, just dividends.

Real estate experiences down markets as well. It is not completely uncorrelated with the stock market. Also, if you own real estate personally, being a landlord is a job you are signing up for more than it is easy as receiving a check in the mail.

Starting a business is not a problem. But, it is obviously not passive and would hopefully create an income stream for you. But, I assume you would work in the business and live off this income. Is that right?

In terms of helping out family. I would hold off until you have a strategy in place. It also means that you do have plans for this money that includes using it as a present income stream. Not just for the relatively small 11k per year but also to fund a business (or businesses if you include real estate) and to pay out additional monies to family. I would be concerned about pulling too much from this portfolio, especially if there is a downturn in the markets/business cycle. Because, hopefully, you have quite a few years ahead.

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cockersx3
Posts: 160
Joined: Sun Apr 17, 2016 3:55 pm

Re: Large Personal Injury Settlement

Post by cockersx3 » Thu May 17, 2018 5:54 pm

bsteiner wrote:
Thu May 17, 2018 8:04 am
shulgin wrote:
Wed May 16, 2018 9:44 pm
...
I opted not to do a structured settlement. I believe I can get a higher return managing the money myself instead of being stuck with 4% a year gains. Inflation eats that up quickly. My lawyer suggested it, citing many people my age would hastily lose most of the money, but I'm confident with the advice I can gather here I can avoid making those pitfalls. In my state, even taking the lump sum is tax free and I plan on parking the majority of that in Vanguard. This seems like the best place for diversification and large amount of individual holdings in each index. Seems like the most tax efficient and suitable investment for my purposes. Once I begin to travel internationally I will place a fraction of the sum in a Schwab checking account to take advantage of their ATM withdrawals and currency exchange fees. I have been shopping around with financial advisors to see how the industry was. I came to the conclusion of many people on this site - Not worth the fees. I mistook the rate, it was actually .8% . Sorry for the confusion and misinformation, heard wrong on the phone call.
...
The benefits of the structured settlement are that the "interest" element of the payments is tax-free and it protects you against foolishly dissipating the money (though that's within your control).

The disadvantages of the structured settlement are that it's inflexible, it's not diversified (though if you do it for only a portion of the settlement you may be able to diversify around it), the expenses (they're hidden, but the insurance agent and the insurance company have to get paid), and the fact that investment income is favorably taxed (qualified dividends, long-term capital gain, capital gains aren't taxable until you sell, and if it's appropriate in your tax bracket you can buy tax-exempt bonds).

Most people who participate in this group are able to invest their money in a reasonable way and won't foolishly dissipate their money.
Yep, this about sums up my understanding of it as well. The prevention of one's ability to blow all the money is the primary selling point I think, followed by the tax benefits. In my case, after our attorney's advice I elected to do a structured settlement for a portion of the money we received, as a college fund for our kids. In retrospect I wish we hadn't done that, as I think the loss of liquidity was not worth the (tiny) tax benefit we got from it. Besides, my wife and I were Bogleheads before we even knew that was a thing, and consider ourselves fairly financially responsible so the "enforced responsibility" aspect of it for us wasn't needed. Since the OP has elected not to do that, he'll have to be very careful to not fritter all the money away. Not saying that it is likely, but remember than forever is a very, very long time - especially when you're in your early 20's.

"Balance billing" is when a healthcare provider attempts to recoup from you the difference between their "posted rate" for medical procedures and the money they received from your insurance provider. Most health insurance contracts require you to reimburse your insurance provider for any healthcare funds that they pay out on your behalf, if you have have been reimbursed for it from another source (ie a settlement). Although I havent gone through it myself yet, my expectation is that - if I ever need major followup care as a result of the injury that led to my settlement - my insurance company will seek reimbursement from me of whatever they paid out on my behalf. I'm prepared for that if needed.

However, I have heard of cases where medical providers, hospitals, etc will also attempt to seek reimbursement for care that they provide, independent of the insurance company. They would be looking to recoup from you the discount from their posted rates and whatever the insurance company paid - which, as OP is probably aware, is crazy high. I've noticed that the billing people at my medical providers regularly ask this when I check in to an appointment - they ask whether the care is the result of an accident, and I assume this is because they are seeking another way to get money. Just be aware about this if they ask and understand why their asking, before you decide to share information that a) you don't need to share and b) can only be used against you.

One question that I don't think I've seen asked of OP is - what is his expected expenses after he receives the settlement? Seems like we need to know that before recommending how to manage that money. Apologies if I missed it.

shulgin
Posts: 16
Joined: Mon May 14, 2018 9:55 pm

Re: Large Personal Injury Settlement

Post by shulgin » Fri May 18, 2018 3:11 pm

david wrote:
Thu May 17, 2018 10:53 am
shulgin wrote:
Tue May 15, 2018 7:50 pm
I'm still deciding how to divy everything up. 3 million isn't a whole lot in today's day and age, but I have a large advantage being so young. I aim to use some of it to start a business, a part to invest in real estate, so I have some consistent income in a down market, and the majority of it in a diversified, global portfolio. I'm not going to use it for living expenses if I can help it, just to create more passive income. A chunk of it will be allocated for my sisters' college (twins just turned 13) and a car for each of them once they are of age. If I choose to continue on with college I will use part of the money for that, but I'm not aiming to go to a super expensive school, I have been going to community currently.

I would say I am at an intermediate level for investing, but I feel like the .125% fee I would be paying for the financial advisors would be outweighed by the assistance they can provide. You make a fair point with the costs I will be incurring in the future. This is why I want to build some consistent income into my portfolio so I never have to worry about being covered. I will be keeping this close to home and only helping very immediate family, or family in my original eastern european country, where a small boost in income would help them survive a lot.
You seem to have a couple of different strategies. Why do you need it to generate passive income if you aren't using most of the money? Growth of the investment itself (without paying you dividends) is more tax efficient. People really like the idea of passive income, but you can turn any portfolio into an income generating one by selling assets. Total return is more important than, for example, just dividends.

Real estate experiences down markets as well. It is not completely uncorrelated with the stock market. Also, if you own real estate personally, being a landlord is a job you are signing up for more than it is easy as receiving a check in the mail.

Starting a business is not a problem. But, it is obviously not passive and would hopefully create an income stream for you. But, I assume you would work in the business and live off this income. Is that right?

In terms of helping out family. I would hold off until you have a strategy in place. It also means that you do have plans for this money that includes using it as a present income stream. Not just for the relatively small 11k per year but also to fund a business (or businesses if you include real estate) and to pay out additional monies to family. I would be concerned about pulling too much from this portfolio, especially if there is a downturn in the markets/business cycle. Because, hopefully, you have quite a few years ahead.
I guess I'm just scared of this 10 year bull run and the tendency for the market to return to the mean. I just don't see bonds or the stock market as particularly attractive, but what do I know. The 3 million will all have to go into a taxed account, so tax efficiency is important to me, but my income is so small I wouldn't get punted into higher tax brackets. I'm still doing research on real estate, I was just throwing a few ideas out there to see what advice I would receive. Thanks for your advice!
cockersx3 wrote:
Thu May 17, 2018 5:54 pm
bsteiner wrote:
Thu May 17, 2018 8:04 am
shulgin wrote:
Wed May 16, 2018 9:44 pm
...
I opted not to do a structured settlement. I believe I can get a higher return managing the money myself instead of being stuck with 4% a year gains. Inflation eats that up quickly. My lawyer suggested it, citing many people my age would hastily lose most of the money, but I'm confident with the advice I can gather here I can avoid making those pitfalls. In my state, even taking the lump sum is tax free and I plan on parking the majority of that in Vanguard. This seems like the best place for diversification and large amount of individual holdings in each index. Seems like the most tax efficient and suitable investment for my purposes. Once I begin to travel internationally I will place a fraction of the sum in a Schwab checking account to take advantage of their ATM withdrawals and currency exchange fees. I have been shopping around with financial advisors to see how the industry was. I came to the conclusion of many people on this site - Not worth the fees. I mistook the rate, it was actually .8% . Sorry for the confusion and misinformation, heard wrong on the phone call.
...
The benefits of the structured settlement are that the "interest" element of the payments is tax-free and it protects you against foolishly dissipating the money (though that's within your control).

The disadvantages of the structured settlement are that it's inflexible, it's not diversified (though if you do it for only a portion of the settlement you may be able to diversify around it), the expenses (they're hidden, but the insurance agent and the insurance company have to get paid), and the fact that investment income is favorably taxed (qualified dividends, long-term capital gain, capital gains aren't taxable until you sell, and if it's appropriate in your tax bracket you can buy tax-exempt bonds).

Most people who participate in this group are able to invest their money in a reasonable way and won't foolishly dissipate their money.
Yep, this about sums up my understanding of it as well. The prevention of one's ability to blow all the money is the primary selling point I think, followed by the tax benefits. In my case, after our attorney's advice I elected to do a structured settlement for a portion of the money we received, as a college fund for our kids. In retrospect I wish we hadn't done that, as I think the loss of liquidity was not worth the (tiny) tax benefit we got from it. Besides, my wife and I were Bogleheads before we even knew that was a thing, and consider ourselves fairly financially responsible so the "enforced responsibility" aspect of it for us wasn't needed. Since the OP has elected not to do that, he'll have to be very careful to not fritter all the money away. Not saying that it is likely, but remember than forever is a very, very long time - especially when you're in your early 20's.

"Balance billing" is when a healthcare provider attempts to recoup from you the difference between their "posted rate" for medical procedures and the money they received from your insurance provider. Most health insurance contracts require you to reimburse your insurance provider for any healthcare funds that they pay out on your behalf, if you have have been reimbursed for it from another source (ie a settlement). Although I havent gone through it myself yet, my expectation is that - if I ever need major followup care as a result of the injury that led to my settlement - my insurance company will seek reimbursement from me of whatever they paid out on my behalf. I'm prepared for that if needed.

However, I have heard of cases where medical providers, hospitals, etc will also attempt to seek reimbursement for care that they provide, independent of the insurance company. They would be looking to recoup from you the discount from their posted rates and whatever the insurance company paid - which, as OP is probably aware, is crazy high. I've noticed that the billing people at my medical providers regularly ask this when I check in to an appointment - they ask whether the care is the result of an accident, and I assume this is because they are seeking another way to get money. Just be aware about this if they ask and understand why their asking, before you decide to share information that a) you don't need to share and b) can only be used against you.

One question that I don't think I've seen asked of OP is - what is his expected expenses after he receives the settlement? Seems like we need to know that before recommending how to manage that money. Apologies if I missed it.
Thank you for the detailed information about the medical aspect of things, I will be careful what I say. My expected expenses are 11k a year after 25 that goes up with inflation and paying for some education for myself and in the future, my 2 sisters (4-5 years out). After 26 I will need good medical insurance to cover some future surgeries and to try to offset the prosthetic cost and bundle it in with the other benefits health insurance gives.

I have agreed to settle and have signed the release. My lawyer has already started negotiating with Equian to get the lien down and he got it down to 313 from 550k so far. Kaiser has to pay their share of the legal costs, but I am happy we have already got 42% off on only the first round of demands. I think it may be possible to squeeze out a bit more over the next couple weeks. I am trying to get everything wrapped up really fast bc I have a large surgery at the beginning of next month and don't want to be paying their share of it! The hardware they put in got infected, so they have to take the plates out of my pelvis :shock: :? . It's looking like everything is on schedule and I might be able to save 40-50k by doing it this way. My doctors and me are on the same page and they are waiting for everything to close out and they are not letting the prescription for the prosthetic to be billed until it wraps up as well. It feels like a real team effort and I am lucky to have great doctors.

PhilosophyAndrew
Posts: 409
Joined: Sat Aug 13, 2016 10:06 am

Re: Large Personal Injury Settlement

Post by PhilosophyAndrew » Fri May 18, 2018 4:05 pm

shulgin wrote:
Fri May 18, 2018 3:11 pm
I guess I'm just scared of this 10 year bull run and the tendency for the market to return to the mean. I just don't see bonds or the stock market as particularly attractive, but what do I know.
Shulgin, this is exactly why you need to pause to educate yourself: You don't know all that you need to know, and you are in danger of a bad outcome cased by letting emotions like fear drive your decision-making.

I urge you to work conscientiously to place yourself in a state of informed objectivity where you can develop a feasible long-term plan for investing your money. For this to be possible, you need to park the money while you upgrade your financial knowledge so that you can develop a sound plan.

The fundamental issues may be whether you will choose to think and behave like a a long-term investor or a short-term speculator or market-timer. Consider these three facts:

(1) Shulgin will experience numerous bear markets and probably several market crashes throughout the rest of your life.

(2) Shulgin can't know when these will occur.

(3) The next crash could begin the the day after Shulgin places his settlement in the market.

How will Shulgin react to these facts? Will Shulgin be troubled? Will Shulgin be afraid? Will Shulgin be motivated to quickly act so as to squeeze out the final gains from the current bull market?

The Boglehead perspective, of course, is to respond to these facts with equanimity because one believes that the long-term tendency of the equity market to rise to higher and higher highs, and because we understand that, viewed in the time scale of the many decades of your investing life, the next market crash is irrelevant as long as you neither panic and sell low nor attempt to do the impossible by attempting to time the market.

Your fear of the "tendency for the market to return to the mean" suggests that you are not yet thinking from the perspective of a long-term investor. If you begin making rash decisions based on short-term fears before you have crafted a solid long-term plan, you risk losing a significant part of your settlement. If, however, you do as many have suggested and spend the next 6-12 learning and planning, then you can set yourself up for financial success.

Which of these two routes will you chose? I know it is tempting to act immediately, and this is especially so when you are fearfully focused on the next bear market. Resisting this temptation has a huge potential payoff!

Andy.

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