The Structure Goose and its Golden Eggs

From Aesop’s infamous Fables comes ancient wisdom that has been treasured since the 6th century B.C. and re-spun throughout the millennia: the lesson of “The Goose That Laid the Golden Eggs.”

You know the story. A poor man and his wife are gifted with a goose that lays a golden egg every day. Rather than enjoy this daily bounty and its certainty, the couple kills the goose, hoping to extract a great lump of gold from her stomach that will make them instantly rich. They find nothing but an ordinary, empty goose and literally kill their opportunity for an effortless, ongoing stream of income.

While the analogy is imperfect, there is some wisdom to be gleaned from this fable for anyone who is thinking about settling a claim. Before agreeing to a one-time lump sum of money, it might be wise to pause to consider the value of a lifelong income stream. Not only does certainty have its value; structures have other features that are also rather “golden.” Consider the following Top 3 Reasons to take good care of your goose and its golden eggs. You can:

  • Fund a lifetime of treatments, payments and income. According to studies and scholarly articles, lump sums meant to last a lifetime are frequently exhausted only a few years after being received. Structures can provide steady, even, protected income for a lifetime. Medicare even favors them for Medicare Set Asides by supplementing any shortfalls. Another morning, another golden egg before breakfast. (See American General’s survey and this article from Bloomberg Wealth Management)
  • Protect needs-based income eligibility. Because a structured settlement policy is considered an “assignment” rather than an “asset” (like a lump-sum settlement), your structured settlement should not affect your eligibility for needs-based public assistance like Medicaid, SSI, or AFDC. Even a small lump-sum settlement may be considered an asset that might trigger a loss of eligibility. Depending on the jurisdiction, this “assignment” status may protect these checks from probate, bankruptcy, and divorce challenges as well. Stretching the analogy a bit: the goose is laying those beautiful golden eggs every morning right in your backyard.(See DRI’s article)
  • Capitalize on tax-free income. The tax-free benefit created by Sec. 104(a)(2) gives structured settlements great advantages. Let’s assume a 2% management fee in a trust or with an investor and a 28% tax bracket; a lump-sum investment would have to outperform an annuity by 30% just to draw even. (See David Donaldson’s article) Maybe the analogy here is that the structured settlement not only provides you with daily golden eggs, but also ensures that you don’t need to pay a financial advisor or the taxman for the value of the gold.

Before you agree to a one-time, lump-sum settlement, think about valuing the power of lifelong, financial security and other benefits that structures can provide. For more details about the golden egg value of structured settlements, check out Chronovo’s website.