When you receive money from a truck accident settlement, you have a large amount of money that needs to last a long time. And so you need to make good choices about how to use this money so that you will have enough to last and can live comfortably. Luckily, your lawyer can help you make these big financial choices.
What Is a Truck Accident Settlement?
A settlement is money that is given to you (the person who was hurt) by the truck company’s insurance providers. It is an agreement between you and the truck company about paying you for your injuries and losses.
Unlike a decision by a judge or jury in court after a trial, an out-of-court legal settlement is reached through negotiation outside of court. Settlements usually get you money faster compared to waiting for a trial. Settlements also avoid the uncertainty of what a jury might decide.
The settlement money is meant to compensate you for:
- Medical bills from the past and future
- Lost income now and less ability to earn income in the future
- Physical and emotional pain
- Damage to your property
- Emotional distress
- Long-term medical care
Lump Sum Payment vs Structured Settlements
Choosing between the two is an important decision that can really impact your financial security.
Lump Sum
A lump sum means getting the entire amount of the settlement right away in one payment.
There are some advantages to receiving a full payout right away:
- Full control over the money – The injured victim can choose to spend or invest the lump sum however they see fit without restrictions. They can make large purchases, pay off debts right away, or put the money into short-term or long-range investments.
- Flexibility – Having all the cash in hand provides more flexibility compared to structured periodic payments. The lump sum can be used immediately for any pressing needs.
- Simplicity – Receiving one large check avoids complex financial arrangements required to establish payment schedules and put money into structured settlements.
However, getting sudden access to a large pool of cash also comes with risks:
- Overspending – Research shows that many people who receive a lump sum settlement spend too much too fast. All that immediate cash can confuse even disciplined spenders. It takes time and guidance to plan budgets that align with short-term needs and preserve funds for long-term medical costs and income replacement.
- Misusing settlements – Without professional financial advice, many people put settlement money into risky investments or use it for unnecessary splurges rather than practical daily needs and future medical expenses.
- Financial abuse – Large lump sum settlements attract scammers and predatory financial salespeople. Friends and family may also pressure injured victims for money.
- Bigger tax burdens – Taxes owed on settlements can be complex. Lump sums may bump crash victims into higher tax brackets compared to periodic payments, resulting in more taxes owed.
Structured Settlement
A structured settlement spreads out the payments over years at scheduled times.
They have these key benefits:
- Guaranteed income – Regular payments ensure consistent income for life, protecting financial security no matter what happens with other income sources or investments. This provides peace of mind.
- Avoid spending too fast – Not having everything at once controls rapid overspending while still providing funds as needed. Gradual access prevents wasting settlement money in the first few years after an accident.
- Growth through annuities – Structured settlements often invest funds into annuities which grow over time to keep pace with inflation. This protects future buying power of settlement dollars.
- Fewer taxes owed – Payments are usually tax-free to help money last. This avoids bumping into higher tax brackets.
- Professional money management – Reputable structured settlement companies manage customized investments to align with an injured victim’s evolving medical expenses, living costs, and income needs. This convenience also prevents unwise financial decisions.
However, structured settlements limit flexibility and control over money:
- Funds only arrive on preset schedules, so crash victims cannot make unexpected big purchases. However, unique needs can often be worked into tailored payment schedules.
- Injured victims rely heavily on settlement companies to design and manage financial plans rather than directly controlling where money goes.
- Getting payments spaced over many years delays resolving some immediate financial issues, like paying down debts.
In the end, both lump sum and structured settlements have important tradeoffs to consider regarding control of money, flexibility, taxes, discipline against overspending funds, and convenience.
Managing Settlement Funds Wisely
Creating a Financial Plan
As soon as you receive a settlement, you need a solid financial plan. This goes beyond budgeting. It is a sustainable strategy to meet both immediate needs and long-term goals.
Your plan should include:
- Review current finances
- Identify immediate costs
- Make a monthly budget
- Set aside emergency funds
- Define long-term money goals
Paying Medical Bills and Debts
Medical bills are usually the biggest cost right after an accident. Prioritize paying these while also looking at ways to lower your overall medical debt:
- Check medical bills for errors
- Negotiate lower payments with healthcare providers
- Resolve any medical liens against the settlement money
- Ask about discounts for bulk payment
- Work with your lawyer to deal with unpaid medical bills
Setting Aside Money for Future Medical Expenses
You may need medical care long-term for your injuries. So you must plan for those future costs like:
- Possible future surgeries
- Regular physical therapy
- Prescription medications
- Medical equipment
- Complications or other conditions later
You can set aside money for future medical costs by creating a special medical trust or buying an annuity just for those expenses.
Avoid Overspending the Settlement Money
Getting a lot of cash suddenly can be confusing. Many people overspend settlement money. Protect yourself by:
- Waiting 30 days before making big money decisions
- Making a detailed spending plan
- Keeping settlement money separate from regular accounts
- Saying no if friends/family ask for money
- Working with financial advisors to create spending rules
Investment and Income Planning
Investing Some of the Settlement
Smart investing can grow your settlement money to improve long-term financial security. Lower risk options include:
- Government bonds
- Certificates of deposit
- High-yield savings accounts
- Municipal bonds
Moderate risk options include:
- Blue-chip stocks
- Mutual funds
- Exchange-traded funds
- Real estate investments
Replacing Lost Income and Planning for the Future
If you cannot work due to your injuries, then your settlement money must replace the income you lost. Consider:
- Calculate your gross annual income before the accident
- Estimate your future earning potential
- Determine your monthly living expenses
- Account for inflation reducing value of money
- Look into Social Security disability benefits
Tax Impacts on Settlements
Is Your Settlement Taxable?
You must understand if taxes apply to any parts of your settlement. Usually:
Not Taxed:
- Payment for physical injuries
- Reimbursing medical costs
- Emotional distress directly tied to physical harm
Taxed:
- Lost income
- Punitive damages
- Interest on settlement
- Emotional distress unrelated to injuries
Minimizing Tax Burden
Accountants can help minimize taxes you owe:
- Structure settlement appropriately
- Use tax-advantaged investments
- Consider charitable donations
- Understand state tax rules
- Plan for estimated tax payments if needed
How Can a Lawyer Help with Financial Planning?
A good attorney can do more than file an injury lawsuit after a truck accident. They can also help you by:
Getting You the Maximum Settlement
Your lawyer plays a big role in maximizing your settlement by:
- Calculating all current and future damages
- Identifying all potentially liable parties
- Negotiating with insurance adjusters
- Documenting every accident expense
- Proving the full extent of your injuries
Helping You Evaluate Lump Sum vs Structured Settlement
An experienced attorney can help you assess options by:
- Analyzing financial status
- Explaining tax impacts
- Considering long-term medical needs
- Evaluating your ability to manage finances
- Getting input from financial experts
Assisting with Debt and Medical Lien Negotiations
Your lawyer can help reduce what you owe by:
- Negotiating lower payments to healthcare providers
- Resolving liens against the settlement
- Working with creditors
- Protecting you from collections
- Ensuring fair distribution of settlement to pay expenses
Protecting Your Settlement from Financial Abuse
Lawyers help safeguard your money by:
- Recommending financial structures to control spending
- Setting up protective trusts
- Vetting financial advisors
- Warning about financial scams
- Providing guidance on money decisions
Connecting You with Financial and Tax Advisors
Your lawyer can connect you with additional professionals:
- Certified financial planners
- Tax specialists
- Investment advisors
- Healthcare planning experts
- Trust and estate attorneys
Conclusion
It is very important to properly plan your finances when you receive money from a truck accident settlement. Why? Because these choices have major impacts long-term.
While the settlement amount might initially seem quite large, you need to make that money last. Why? Because this compensation is meant to facilitate your recovery and maintain financial stability after the crash.
Your lawyer does more than just get you the settlement. They provide invaluable guidance on informed decisions about protecting and using that money. By following sound financial planning strategies and leveraging professional support, you can make the settlement deliver long-term financial health for you and your family.