by John Darer ® CLU ChFC MSSC CeFT RSP CLTC
It Doesn't Always Make Sense to Take a Settlement on a NY CPLR 50B Judgment
Would you put 20% of your money away in an investment that is guaranteed to lose money and 80% of your money in an investment with less than 1% rate of return over less than a decade? HELL NO!
Such a conundrum was a factor in what was proffered as part of a proposed structured judgment that I was asked to review.
There is some confusion over the significance of the 4% statutory increases built into Article 50B of the New York CPLR (or in any structured annuity for that matter). It simply represents the statutory percentage that the monthly benefit payment in a structured judgment (or structured settlement annuity funding the structured judgment) changes year to year. It does not represent a rate of return. In the aforementioned scenario, a payment stream that cost over $1 million that paid out over 7 years with a 4% compound increase carried an underwhelming 0.97% internal rate of return. Other payment streams had negative rates of return. To think that some refer to the 4% as a " kicker" just reminds me of the "Kick me" sign affixed to the back of George McFly in the movie "Back to The Future". "Okay...Okay you guys very funny"
New York personal injury lawyers should bring in a credentialed financial settlement expert, such as a registered settlement planner, as early as possible to help them and their clients analyze their options, document their file and make the best decisions.
When does it make sense to settle a NY CPLR 50A or CPLR 50B structured judgment?
Notwithstanding that you should rely on your attorney for legal advice, it may make sense to take a small haircut for any or all of the following reasons:
- Gain greater customization than the NY CPLR 50A or CPLR 50B statutes provide
- Achieve diversification
- Income spreading by structuring taxable elements of damages when cases are settled post trial, to help mitigate what would otherwise all be taxed in year one. Read about structuring taxable damages by way of a non qualified assignment and reinsurance structured settlements
- Mitigate mortality risk with New York structured judgments that would result in a windfall to the structured judgment annuity issuer in the event of premature death, which would come at the expense of the plaintiff's survivors if the plaintiff is uninsurable for life insurance. Read Life Insurance in Structured Judgments and Personal Injury Settlement Planning, at 5 (c)
Updated August 16, 2021
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