A substantial personal injury settlement amount can range from six to seven figures. Settlements of this nature are intended not only to provide a dollar figure for the pain and suffering endured, but also to alleviate future financial hardship caused by the incurred injury.

When clients receive such a settlement, I always counsel them to consider structuring their settlement in a settlement annuity. A structured settlement annuity provides settlement money to clients over a period of time rather than in a single lump sum. There is great wisdom in structuring large settlements in this manner as studies have shown that lottery winners who receive millions of dollars deplete all of the assets they receive within a couple of years. Unfortunately, people who receive large amount of money from a personal injury settlement frequently deplete their money as well.

I have been an attorney for the past 36 years and, unfortunately, I have many sad stories to tell from my clients who did not take my advice on purchasing a structured settlement and, instead, chose to immediately take the lump sum settlement.

Cautionary Tales About Not Structuring a Settlement:

A woman who received a $5 million divorce settlement. She had lived well with her husband who was wealthy and after receiving the divorce settlement she decided to continue living the extravagant lifestyle, even though she was, after the settlement, cut off from the huge cash flow of her husband’s business. She hired a financial planner and two stockbrokers. (My father, born at the start of the Great Depression used to say, “Stockbrokers. The stockbrokers job is to make you broker and them richer.”) These two stockbrokers got my client involved in a series of bad investments which cost her millions of dollars.

She then married a “near-do-well” man who was a nice man and good step-father to her children, but who had absolutely no business sense. He continued to borrow money from her, which he promptly lost in the construction business. She bought new Mercedes, new BMW’s, extravagant go-carts for her children and more. She bought $3,000.00 blue jean outfits, huge diamonds and extravagant furniture.

She sold her house that was paid for, which she received in the divorce settlement, so that her new husband could build her a mansion on the 40 acres she received in a subdivision that was supposed to be sold off in lots to produce more money for her estate. Instead, she had a big mansion in the middle of the 40 acres along with all of the expenses that went with that poor decision.

Another client structured some of the settlement proceeds with an annuity and with the rest bought a new Hummer, a new Navigator, a big fancy house full of expensive but poor quality furniture, new electronics, four-wheelers, horses, and home gyms. As you can imagine, it didn’t take long until all of the money that was not structured was gone. This couple burned through almost a million dollars within a year.

A client who had been blinded in a medical malpractice event received seven million dollars. As is my custom, I advised him to buy a structured settlement annuity. He refused. With his settlement proceeds, he bought a new Jaguar for himself to be driven around in and Navigators and Hummers as well as condominiums for all of his children. He gave his brother, the preacher, a half a million dollars to build a church. He loaned all of his relatives money. He bailed all of his relatives out of legal trouble. He married his next door neighbor who persuaded him to buy a mansion and another luxury car in their joint names. The proceeds of his case were fully expended within four years of the settlement.

In another case, a very bright man whom I admire and respect, structured at my insistence, a fourth of his settlement. The rest of the money he invested in the stock market and real estate ventures. He became a day trader. For a couple of years he was furious that he listened to me and structured part of his settlement. At the end of the two years, he had lost all the money he took to invest and the only amount of money he was receiving was from annuity and his disability payments from the VA and the Post Office.

Fortunately, some of my clients use their settlement proceeds in a prudent manner. Some clients buy a structured settlement annuity; some pay cash for a home; others pay their tuition for a college education and/or invest in real and tangible assets.

I think we all believe we are smarter than we really are when it comes to money, myself included. I admit to making my fair share of imprudent investments over my life time. It has been a steep uphill learning curve to handle money.

Let me tell you this, if I had a severe injury and could not work any more and had one shot at financial security in the form of a personal injury settlement, I would invest it in a structured settlement annuity. Therefore, I advise my clients to do the same.