Used properly and distributed over time, settlement funds can literally provide long-term financial security and stability for the bereaved family for potentially decades into the future.
Here are tips that can help.
Wait Before Making Any Major Money Decisions
After going through the extended difficult legal proceedings and finally being awarded the wrongful death settlement, you will likely feel an immediate urge to do something substantial with the incoming money right away. However, it is wise to move slowly and avoid hastily jumping into big significant financial decisions or purchases.
The initial period after losing a loved one is often filled with grieving. Additionally, receiving a sudden financial windfall can be quite mentally and emotionally disorienting.
So in the first several months after the settlement payment arrives, while your grief is still fresh, you may not have the clarity of mind or calm rational perspective to make the wisest decisions about using the funds.
Here are some simple initial actions you can take during this waiting period:
- Ensure the full settlement amount is safely deposited into a stable high-yield savings account rather than letting it sit idly. This protects the principal while earning interest so it remains untouched yet steadily growing as you continue coping and processing. Don’t worry about optimizing interest rates just yet – the priority is preserving the capital until you are ready for next steps.
- Seek out the advice of a financial advisor or fiduciary who has experience managing larger sums of money and can consult with you on developing a balanced, personalized plan for sensibly utilizing the funds over many years. Their expertise can prove invaluable later.
- Avoid emotionally driven impulse purchases or major lifestyle changes for now, even if it’s tempting to make big financial gestures as a way of honoring the deceased. Restraining from hasty decisions protects you down the road.
Taking a step back to allow some time and mental space before acting gives you the bandwidth to eventually make much more calculated, logical calls about responsibly directing this financial windfall for optimal benefit.
Step 2: Make a Realistic Household Budget and Long-Term Financial Plan
After a period of initial reflection, the next constructive move is to get organized and create a detailed working budget mapping your updated household finances. Integrating this significant new income source into a deliberately crafted spending blueprint will ensure you maximize its positive impact.
Making a budget simply means thoroughly tracking where all your money comes from and where exactly it goes each month. Budgeting is vital when handling a substantial lump-sum settlement to guarantee that this single windfall can keep contributing to your family’s solid financial foundation for years or even decades into the future, long after the initial funds are exhausted.
For example, your customized financial plan could include:
- Paying off all existing debts first, including credit card balances, car loans, student loans, medical debts or personal debts to family. Eliminating debt protects income that can go to savings.
- Next, establishing “emergency” cash reserves of 3-6+ months of costs to cover surprise expenses like medical bills or job loss impacts. This provides a buffer for life’s curveballs.
- Once secure, funneling portions into tax-advantaged retirement vehicles like Roth IRAs and 529 college plans to substantially grow savings for later. This stage ensures lifelong financial health.
- Additionally, investing smaller portions into well-diversified, low-fee stock/bond funds to generate further wealth over decades. Carefully managed funds can elevate stability.
Having this crystal clear money roadmap with multiple milestones allows you to execute the financial plan for the out-of-court legal settlement money in an organized manner. An experienced financial advisor can provide customized guidance as to the exact accounts and investment products that match your risk appetite.
Step 3: Prioritize Paying Off Existing Unpaid Debts
Before moving forward with longer-term investing or saving of the settlement funds, first direct a portion to clear out any current unpaid or outstanding debts held by your family such as hefty credit card balances, auto loans, burdensome medical debts, or personal IOUs with relatives.
Paying off nagging debts with some of the settlement money serves multiple smart purposes:
- It provides immediate financial relief because debt payments no longer drain cash flow each month, allowing savings momentum. Every dollar not spent on debt obligations becomes better used on priorities like preparing for retirement.
- Over the long haul, eliminating destructive high-interest rate revolving credit card debt saves a fortune. Minimum payments prolong the pain. Nuking cards with settlement funds stops the incredible amounts of wasted money on interest payments over the years.
Step 4: Explore Setting Up a Trust or Structured Settlement Arrangement
For larger seven-figure or higher wrongful death lawsuit settlements, simply receiving a single huge wire transfer with millions in cash all at once can sometimes do more harm than good if survivors are not fully prepared to responsibly handle such an enormous dollar amount. This is where legal arrangements called trusts and structured settlements can help.
Trusts
Trusts can provide a helpful structure when significant sums like a large wrongful death settlement are involved:
- They enforce disciplined slow release of funds over many years or decades. No reckless burning through cash risks.
- Experienced trustees professionally invest assets to aggressively grow the trust balance over time through compound growth in the markets. Disciplined investing that individuals may not have the skill or discipline to do.
- The trust contract can specify precisely how money is to be used for the betterment and care of grieving survivors in the deceased’s family, honoring final wishes.
- Trusts legally shield the assets from lawsuits, creditors and messy legal claims. This adds a layer of protection.
For larger settlement cases, a customized trust set up with the help of your wrongful death lawyer can be the ideal vehicle for managing the distribution of funds in a protected manner over a longer time horizon. An experienced trust lawyer can also help you structure how the incoming settlement assets get titled and placed under trust management to minimize taxation where possible.
Structured Settlement
A structured settlement provides similar benefits to a trust by taking a large lump-sum settlement and structuring it into predictable installment payments made out to the beneficiaries over many years to provide reliable ongoing income. But structured settlements involve direct structured payouts of the settlement itself rather than placing the lump sum amount into a trust first. The settlement is effectively the trust assets.
Benefits of utilizing structured settlement payments include:
- The regular fixed schedule of payments ensures the settlement money is rationed responsibly over time rather than risking fast and foolish depletion of a single huge lump payment. Discipline is built-in.
- Payments are customized to match future financial needs and lifestyle costs making consistent household budgeting easier long term.
- Each structured payment grows incrementally by a specified percent over time helping offset inflationary impacts to protect real spending ability years later. Gradual growth prevents payment declines.
In this way, structured settlements provide disciplined longevity and measured growth of wrongful death lawsuit settlement funds for grieving families struggling to get back on their feet financially after a devastating loss. Consult with specialized legal counsel to see if this arrangement suits your unique needs.
Step 8: Get Professional Help
Handling a lot of money can be confusing, especially if settlements are new to you. That’s why it’s wise to have financial professionals guide you.
Here are experts who can help:
- Financial advisors to plan budgets, investments, and long-term aims
- Lawyers to set up trusts and ensure legal handling
- Tax help to manage settlement tax impacts
With professional support, the settlement money will be correctly managed for family security.
Final Thoughts
Carefully handling wrongful death settlement funds ensures long-term support for your family. By moving slowly, planning thoughtfully, getting professional guidance, and keeping loved ones’ needs in mind, you can direct settlement money in a way that honors your loved one’s memory while protecting your family’s future.
Remember, each situation differs, so it’s wise to consult experts before big money moves. With the right plan, settlement funds can provide stability and comfort for years ahead.