Estate planning is a way to assist individuals in eliminating uncertainties by providing a clear and purposeful way to transfer or dispose of assets, especially money, maximizing the value left to loved ones. Prime estate planning candidates are individuals that:
- Have suffered any kind of serious personal injury, and
- Seek compensation or damages
The majority of personal injury and workers’ compensation claims are resolved through settlement or paid out through an award. Individuals who receive these settlements or awards are almost always paid in the form of one lump sum payment. This is true, whether the individual was injured at work or injured through another activity such as an automobile accident or a slip and fall.
Any lump sum received from a personal injury settlement is considered a non-taxable event. This means that generally, the money received through settlement or award from a workers’ comp or personal injury claim will not need to be reported as income for the injured person and is therefore not taxable. The lump sum is a maximum value asset.
The injured individual then becomes an excellent candidate for estate planning because the lump sum gives the injured person a maximum dollar value. This offers injured persons a rare opportunity to have a large amount of money, received all at one time. While receiving such a maximum value asset can be helpful in difficult financial times, it also presents a risk. Such a large lump sum provides opportunity for individuals to spend, or fail to save, the money appropriately. Estate planning can combat this tendency. Estate planning can protect the injured individual over the long run, and protect their loved ones.
The severity of the personal injury can even make the need for estate planning more urgent than the above practical justification. If an individual is severely injured in such a way that their injury may reduce their life expectancy, estate planning almost becomes a necessity. Individuals who have suffered a personal injury and have or will receive compensation for their injury should seriously consider estate planning as a way to protect their money and their loved ones.