SETTLEMENT PLANNING GUIDE

As an injured person who is receiving a settlement related to a profound injury, a surviving family member of a wrongful death, or even as a conservator or guardian charged with making critical decisions related to a settlement to know recovery, the you deserve options unique challenges such as meeting future healthcare needs and protection of potential eligibility for public benets programs. Taxes, cash ow and investment risk are also ever present concerns. Unfortunately, you must make a lifetime of decisions before you receive your settlement or you may jeopardize your ability to fully benet from the programs and resources available to you. Fortunately, Forge Consulting, LLC is available to help you so you dont have to make these decisions on your own or through a nancial advisor who may not be knowledgeable in all areas of personal injury settlements. Forge Consulting, LLC is a national company dedicated to exclusively working with injured plainti s and their families as we work side by side with their attorneys in personal injury and wrongful death cases in single event and mass tort settlements across the country. With an exclusive focus on settlement planning, Forge is uniquely qualied as a specialized resource and proud to be at the forefront of the settlement planning industry. Through Forge, you have access to a full array of nancial prod-

PAGE 1 ucts and services* with a settlement team of professionals licensed in all 50 states and a proven record of success in matching nancial resources to the plainti s current and future needs. Our settlement preservation strategies are designed to help plainti s prepare to make the best use of their settlements, and are coordinated with government benets programs in mind to help preserve eligibility for Medicaid, Medicare and other benets. Once we have an understanding of your needs and risks, we turn our focus to reviewing the available options and assisting in developing a plan that makes the most productive use of the settlement recovery. We strongly recommend a balanced approach to client solutions and assess your overall nancial picture from a complete asset allocation standpoint and how settlement proceeds should be diversied across di erent asset classes. Cash ow and asset preservation are key components to a nancial solution.

available to you at the time of settlement. Your choices and decisions related to a settlement plan are very important in order to preserve your settlement award so that it can provide nancially for you and your family now and into the future while also protecting eligibility for future government benets and programs which may be impacted by the settlement. This guide is intended to help provide information to you about settlement options and how we can work with you and your attorney to fully address your needs. A settlement resulting from the wrongful death of a parent, spouse, or breadwinner requires a thoughtful and comprehensive approach so that a resulting plan can best provide a replacement of lost household income and services. A personal injury award also holds its own

*Information relating to investment advisory services is made available through Advocacy Wealth Management Services LLC (AWMS), a federally registered investment advisory a liated with Forge. This message does not constitute a solicitation to engage the services of AWMS.

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SETTLEMENT PLANNING GUIDE

FREQUENTLY ASKED QUESTIONS
Based on questions we often receive, we have created this document to address important areas related to personal injury and mass tort settlements: 1. Financial options with your settlement proceeds 2. Taxation of your settlement 3. Government benets and preservation of health care 4. Structured settlements 5. Cash management 6. Alternative growth and payout plans 1. What are my nancial options with my settlement? Traditionally, unless there are other constraints within your settlement agreement, you can receive your net settlement proceeds (the amount remaining after attorney fees, cash expenses, and any other deductions from your settlement) in a lump sum form (cash payment) or you may be able to receive part or all of your settlement paid to you over time as a structured settlement. Your settlement proceeds paid to you in lump sum form are normally paid in the form of a check or wire to the account of your choice or through a series of payments if designed through an annuity. There are di erent types of annuities which may be available and of interest to you including a structured settlement annuity with tax free payments. 2. Will I pay tax on my settlement? Typically, any money you receive as a taxpayer is assumed to be gross income. There is, however, a section of the Internal Revenue Code that permits a taxpayer to avoid paying taxes on any money (other than punitive damages) received due to personal physical injuries or physical sickness (see Section 104(a)(2)). Provided that the money you receive is due to a physical injury, sickness, or wrongful death, you will not pay tax on the money when you initially receive it. If you received your settlement due to a non-personal physical injury there could be a tax due on your settlement and should be reviewed by a tax professional. If you place part or all of your

PAGE 2 settlement proceeds into an investment vehicle that grows or provides income to you, the future growth or income (if any) may be taxable income unless invested in a tax exempt holding or structured settlement. What If Im receiving money because of a family members injury? If you are a Derivative Claimant (i.e., a spouse, parent or child of a physically injured person) you will not be required to pay tax on the money when you initially receive it. Section 104(a)(2) of the Internal Revenue Code says if your claim has its origin in the physical injury or physical sickness su ered by another person, then all settlement money (other than punitive damages) is viewed as being awarded for that reason, whether or not the person receiving the settlement money is the injured party. As an example, settlement money you receive due to your claim of loss of love, support and a ection as a result of your spouses injuries is excludable from your gross income. This is because a direct link exists

*Forge Consulting is not licensed to provide legal or tax advice. If this communication does include federal tax advice it is not intended to be used, and cannot be used for (i) the purpose of avoiding tax penalties, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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SETTLEMENT PLANNING GUIDE

between your spouses or relatives physical injuries and the settlement money you recover as a Derivative Claimant. (See Private Letter Ruling 200121031, 5/29/2001, IRC Sec(s). 104). This would also be true if you are receiving settlement money as the parent or child of a physically injured person. 3. What are the basic di erent types of government benets? Many of the government programs that provide you with monthly income or payments for medical services have strict nancial eligibility limits. Without careful planning, your settlement award may cause you to lose your eligibility for these programs. It is crucial that you know what, if any, government benets you are receiving now or could receive in the future. Supplemental Security Income and Medicaid Supplemental programs (also Security called Income poverty (SSI) and Medicaid are needs-based programs). In most states, disabled people who qualify for SSI automatiSocial Security Disability and Medicare Social Security Disability (SSD) and Medicare are entitlement programs. The SSD system was created to provide disability insurance for injured workers and their families. Once a disabled worker has paid a su cient amount in the Social Security system and is unable to engage in substantial gainful employcally become eligible for Medicaid, the federal/state program that provides medical-care coverage for the needy. Medicaid benets can cover items like prescription medication, transportation and home-based care. Because these programs are needs-based, your award may a ect these benets. For example, a person with a savings account of $2,000 generally is not eligible for SSI or Medicaid. Certain assets, such as a persons home and automobile, are not counted as available resources for purposes of determining eligibility. Subsidized housing and food stamps are also needs-based programs that can be a ected by your award.

PAGE 3 ment for a period of at least 12 months, he or she is eligible for SSD. If you are approved for any kind of Social Security disability benet other than SSI, you will receive Medicare after you have been entitled to SSD benets for two years. Medicare does not pay for long-term care or many prescription drugs, but does pay for a portion of major medical expenses and hospitalizations. Because SSD and Medicare are entitlement programs, your award should not a ect your eligibility for these programs unless there is a benet o set issue to contend with, as there can be within workers compensation settlements. What is a Medicare Set-Aside (MSA)? An MSA is a fund created in the settlement of a workers compensation or certain liability cases. It is established from a portion of the settlement amount that is to be used to pay for future life time medical expenses related to the job injury/illness that would otherwise be payable by Medicare. Funds must be established in separate insured

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accounts and may be self-managed by the claimant or set up and managed through an administrator. Why are MSAs required? In 1981, the Medicare Secondary Payer Statute established that Medicare was to be a secondary benet payer behind the responsible parties for workers compensation claims. In July 2001, the Centers for Medicare and Medicaid Services (CMS) declared that funds for future medical expenses be set aside in Medicare Set-Aside accounts for certain workers compensation settlements. What can I do to protect SSI and Medicaid? A special needs trust (SNT) may allow you to use a portion of your settlement award for items that can enhance your quality of life without jeopardizing your eligibility for SSI and Medicaid. You should consider a Special Needs Trust if you How are MSAs funded? Typically, MSAs are funded through settlement proceeds. An MSA can be funded 100% up front with a lump sum deposit as determined by the MSA allocation or it can About Special Needs Trusts While there are di erent types of special needs trusts, they all share the anticipate needing or currently are receiving SSI or Medicaid. Failure to do so may result in CMS refusing medicare coverage for all future medical treatments of claimant. Liability exposure exists with employers, insurance companies or third party administrators if Medicare is not properly taken into consideration at the time of settlement. be funded over time through an annuity. An annuity can be used to fund the annual deposit requirements into the MSA and may save money if the cost of the annuity is less than the MSA lump sum amount. This savings may result in 10-50% of the lump amount for the cost of the MSA, which can provide more money in the claimants control. A properly designed annuity plan is fully Medicare compliant and can also preserve monies for the beneciary's family, which may not be available through a lump sum funding.

PAGE 4 purpose of allowing an individual with disabilities to have both a settlement award and government benets. The term special needs trust refers to the type of custom-drafted disability trust established under sub section (d)(4)(A) of the Federal statute that authorizes such trusts (42 U.S.C. 1396p). To have a valid (d)(4)(A) disability trust established you must: Be under age 65 when the trust is established Meet the Social Security denition of being disabled The trustee (parent, grandparent, guardian) is obligated to pay back Medicaid upon your death. Keep in mind, however, that when medical providers contract with Medicaid, they agree to provide services at a signicantly lower cost than if you had to pay for your medical care privately with Medicaid. When a trustee of a special needs trust repays Medicaid upon your death for services paid for by Medicaid over your lifetime, repayment will be for this lower amount and will be free of any penalties and interests. After reimbursing Medicaid, the rest of the trust money can be distributed to your family

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members/beneciaries. Pooled Trusts For individuals over age 65 (in certain states) or for settlements which net to the claimant less than $200,000 where the cost of drafting an individual (d)(4)(A) trust may be prohibitive, (d)(4)(C) Pooled Trusts are available and may be considered to protect needs based government benets. Pooled Trusts must satisfy the following requirement: The trust must be established and managed by a nonprot association The trust must maintain separate accounts for each Trust Beneciary, but the funds are pooled for purposes of investment management Each separate trust account must be established solely for an individual who is disabled as dened by law, and Only that individual, the individuals parent, grandparent, legal guardian or the court may create the trust. There may be age restrictions or requirements for Pooled Trusts, 4. What is a Structured Settlement? This is a comprehensive solution designed for the present and the future. A structured settlement is a mechanism that allows plainti s a means of deferring part or all of the settlement and receiving the proceeds when desired as opposed to all at once. For example, you may take part of your settlement as immediate cash to cover expenses now and also have a portion of your personal injury or wrongful death settlement paid out in a series of guaranteed, income tax free periodic payments to meet your future needs as you like. This process was rst made possible depending on the state. Any funds that remain in the individuals account upon that individuals death may be retained by the trust or distributed to a chosen beneciary depending on the trust document. Any funds not retained by the trust must be used to reimburse the State if monies have been expended by the State for the benet of the claimant. This may be referred to as a modied payback provision.

PAGE 5 in 1982, when a bipartisan coalition of legislators in Congress came together to pass laws that amended the federal tax code. The Periodic Payment Settlement Act of 1982 (Public Law 97 473) was a means of formally recognizing and encouraging the use of structured settlements in physical injury and wrongful death cases. Who is eligible to structure a settlement? The only persons entitled to the tax free benets of a structured settlement are those who are settling a personal injury or wrongful death case. How does a Structured Settlement benet you? It provides nancial security A long-term structured settlement has several advantages. Security is rst and foremost. A structured settlement provides guaranteed* long-term income. It gives injured people and their family the ability to adapt and/or recuperate without spending time and resources determining and being dependent upon various investment strategies. The

*Guarantees are based upon the claims paying ability of the issuing life insurance company.

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second primary benet is nancial. When Congress amended the federal tax code IRS Code 104(a)(2) to promote the use and integrity of structured settlements, it explicitly provided that 100 percent of every structured settlement payment would be exempt from federal and state income tax. It eliminates the burden of dealing with a lump sum settlement Although most people feel that they would be able to handle a large cash settlement, in reality the money can disappear all too quickly. Many people who receive cash settlements fully spend their money within a short period of time despite di erent intentions. Cash settlements are often depleted when the recipient lends or gives money to family and friends, makes risky or volatile investments, or purchases expensive items. You must be certain that the money designed to compensate for a lifelong injury is there for the coming years. With a structured settlement, a designated, contractually xed payment plan ensures that future needs will be met. It is income tax free Structured settlement payments are income tax free and guaranteed. Although cash settlements are also initially tax free, the interest earned on investing that money is usually fully taxable. Unlike structured settlements, the return on any investment you make with a cash settlement is never guaranteed . Consider the
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PAGE 6 see the volatility of investments that

It protects you and your family Many people may depend on the settlement for daily living expenses. By structuring your settlement, you can guarantee that your family will always be nancially protected. You may design your structure to include a monthly check with su cient funds for food, clothing, transportation and housing. In addition, your structured settlement can be used to fund your children's educational needs or to provide income for you when you retire. The xed nature of structured settlements security. provides assurance, peace of mind and a lifetime of

come without guarantees. Its backed by the highest rated insurance companies When you structure your settlement, your future payments are generated from a Structured Settlement Annuity. This means a highly rated, well capitalized life insurance company contractually guarantees your payments. Depending on the plan you design, payments may be guaranteed for a specic period of time or for as long as you live. Before choosing a Structured Settlement, please consider: Timing is critical The choice of a structured settlement must be made before accepting the settlement proceeds. The applicable tax laws state that you cannot accept the proceeds in cash now and then elect to create a structured settlement later. Payment streams are xed Remember that the nature of the periodic payment option is to provide a xed stream of income to properly

performance of the stock market over the past few years and you can

*Guarantees are based upon the claims paying ability of the issuing life insurance company.

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address your future needs. Payments cannot be accelerated. 5. Cash Management Most people have certain immediate needs like paying o credit card debt and vehicle loans, but they often have longer term needs that they want to plan for with their recovery. Regardless of the amount you have to save or want to try and invest it is imperative that you receive independent advice on how to preserve your recovery and watch over risk, 6. Alternative Growth and management expenses, and taxes. Too often, there are inappropriate comparisons made over the true costs of investment alternatives and poor decisions can be made without someone helping to provide independent assistance and who is willing to ask di cult questions of nancial advisors. Forge Consulting has an a liation with Advocacy Wealth Management Services, LLC which is a federally Registered Investment Advisor*. Our rms work daily with families who have been injured and understand the special needs they have including how Payout Plans People often ask what alternatives are there for my settlement proceeds besides a lump sum payment or a structured dedicated settlement. to complete Forge is product important it is to blend nancial solutions, liquidity, and protection for both short term and long term goals. Through Advocacy* and other a liations Forge can assist you with complete nancial solutions to meet your needs including management of the cash portion of your settlement. If preferred, Forge can also work directly with an existing advisor to make sure he or she is aware of your clients planning opportunities.

PAGE 7 Annuity, Forge can assist you with additional plans that include a Fixed Indexed Annuity (FIA) or a Single Premium Immediate Annuity (SPIA). Fixed Indexed Annuity or FIA A FIA is a xed annuity but has a growth component that makes it similar to a blend between a xed annuity and a variable annuity. This is a contract in which you pay a premium in exchange for a life insurance company to provide future payments to you when you desire. It is a solution for people who dont need immediate income but want to defer monies and acts like a savings account with a guaranteed rate of compounded interest for the rst 10 20 years of the contract (sometimes more). The FIA allows for the potential of higher earnings by linking the interest to the performance of a stock index yet still o ers access to and safety of your principal. With a FIA, you can maximize your invested dollar by taking advantage of triple compounding interest. You earn interest on the principal, interest on the interest (since you continue investing or roll over from year to year), and lastly, you earn

solutions for clients including full access to market options and is not tied to any certain type of product or settlement plan due to a nancial incentive from a product provider. In addition to assistance with a cash payout cacy which Wealth can be managed or through an a liated entity like AdvoManagement* periodic payments to you over time through a Structured Settlement

*Information relating to investment advisory services is made available through Advocacy Wealth Management Services LLC (AWMS), a federally registered investment advisory a liated with Forge. This message does not constitute a solicitation to engage the services of AWMS.

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interest on the taxes you would have paid on the interest (since the product is tax deferred). One other advantage to this product is the ability to turn the income stream on when you need it, o ering liquidity with your investment. The longer you wait the more you have in the account and therefore the higher the income is for life when you decide. It also has other features including protection against incapacitation if the owner requires care in nursing home, hospital or hospice facility as well as a death benet for the family. Single Premium Immediate interest and are designed for someone who must have immediate income as payments must begin within 13 months of funding. The accrued interest in this product is taxable but an exclusion ratio applies for the amount of each return of the tax-exempt principal over time. There is no stock market risk associated with the product and it provides guaranteed* xed income regardless of changing interest rates. Additionally, and unlike a Structured Settlement Annuity, if life changes and you need to liquidate this product you may be able to do so with minimal impact to the invested dollar by taking advantage of an optional commutation feature. A SPIA can also be used when a tax free structured settlement is not possible due to non personal physical injuries or due to constructive receipt where you or your attorney have already received the settlement proceeds. What to do next Please write down any questions you have and have your attorney contact us so we may assist you. Please feel free to call (866)-68 Annuity or SPIA If control of the asset is important and other alternatives including a structured settlement or FIA arent appropriate, available, or are already part of the settlement plan, a SPIA may be of interest. This is essentially an annuity in which you pay a single premium in exchange for the issuer (the life insurance company) to make good on payments for either a xed period of time determined by you or for the rest of your life. Payments consist of principal and

PAGE 8 FORGE or visit our website at http://www.forgeconsulting.com. The experts at Forge provide personalized payment plans for plainti s in personal injury, work comp, and wrongful death settlements seeking long-term nancial solutions. By piecing together the optimal balance between cash management solutions, Structured Settlement Annuities, FIAs, SPIAs, and other liquid and long term holdings, Forge hopes to bring valuable tax advantages and solutions to every plainti . We have a network of professionals and nancial advisors who know the personal injury landscape and are extremely skilled in working with those whose lives have been irreversibly impacted by a personal injury or wrongful death. Forge Consulting, LLC is here to provide sound nancial strategies that help you make the most of your settlementtoday, tomorrow and into the future.

*Guarantees are based on the claims paying ability of the issuing life insurance company.

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