Beginning with their anticipated net recovery figure (after deductions for attorney fees, liens, costs, etc.), I ask clients to imagine dividing their settlement proceeds into these following three distinct special purpose categories, or buckets:

Money for Things You Need Now

Money for Things You May Want but Can Afford to Lose

Money for Things You Will Need in the Future

The first two categories are combined as one's "Up Front Cash" amount.

And just as no two people are alike, the size of each bucket will vary from case to case and person to person. 

This first bucket of money is reserved for needs that absolutely MUST be met soon after the settlement draws to a close. These can include the obvious and the not-so-obvious including:

Seed Money for a Special Needs, Spendthrift or Other Type of Trust

Making Home Modifications to Accommodate a Disability

Anticipated Near Term Surgery - Paying Off Credit Card Debt

Repaying High Interest and/or Family Loans

Replacing a Car that's Past its Prime

We actually broaden the definition of "NOW" to include money that will most certainly be needed (emphasis on NEED versus Might Want) in the next 3-5 years. This reassures clients their shorter term needs will be taken care of.

It's this second bucket that helps clients focus on the importance of the decision they face and helps them differentiate between what's really a "need" and what's just a "would like to have."

KEY CONCEPT: This bucket is reserved for money that a client could absorb if it all disappeared the next day.

This is their "Monopoly" money, if you will. In a perfect world, it will last a long time. But if it doesn't, the client needs to be able to accept any diminution in value or loss of principal.

Ask anyone who's ever had easy access to money, how long it usually lasts. There's no shortage of ways any amount of money can disappear faster than anyone believes possible.

Most people have good hearts and want to help others when they can. Those receiving large sums of money are easy targets for the conscienceless masses intent on separating them from their new found wealth. Sometimes, sadly, this includes family members who may not even realize they're doing anything wrong.

There's a reason so many lottery winners, young pro athletes signing lucrative contracts and personal injury plaintiffs end up with little money left after a short period of time. It. Just. Goes. Fast!

This bucket should also include funds people want to invest with which can be a very good thing. Those with experience investing, who understand the different categories of risks and/or have a history of working with an advisor who understands their goals will potentially do just fine if they put a fair amount of money into this bucket.

But if someone's idea of "investing" is opening a restaurant or following a friend's tip to buy shares of "Can't Miss" stock, this bucket could end up empty very quickly. Ask anyone who once owned Enron stock how that worked out for them.

This money might be spent wisely or frivolously. Either way, the client needs to be willing to accept the possibility that it could be one just as easily as the other.

This is the Safety Net Bucket. The Guaranteed Future Bucket. The No-Matter-What-Else-Happens-This-Money-Will-Be-Here Bucket.

This is the Settlement Preservation Bucket and a structured settlement fills this bucket quite nicely. In fact, for a variety of reasons, it's usually the best option for this bucket which should be considered as sacred as a Social Security retirement check. 

The ability of structured settlements to help meet long term financial needs is well established. Encouraged by federal legislation and offering preferential tax treatment on guaranteed cash flows that can be customized to meet one's future anticipated needs, nothing can compare to a structured settlement.