Are you receiving a settlement from a legal case? While one of the most important resources at this time is your attorney, you should also consult with an accountant. Why? Here are a few areas in which a skilled accountant can help.
1. Negotiating a Settlement
If you haven't signed on the dotted line yet, consult an accounting professional when negotiating your actual settlement. They will help you weigh certain factors, such as taxability or payment terms to ensure you get the best agreement possible.
2. Planning for Taxes
As mentioned, your settlement may be partially or completely taxable. While some types of legal settlements and judgments are nontaxable, many, including compensation for pain and suffering, for example, must be declared on your income tax forms. You'll need to understand how much tax may be due, how you should pay it, and ways to minimize the tax bill.
3. Preparing for the Windfall
A windfall is a sum of money outside your normal range of income, such as the lottery, a bonus, or a settlement. Windfalls can provide financial stability, but they also have many risks. Most people aren't prepared to manage a sudden lump sum of money. Your accountant will help you identify future needs for the money, prepare appropriate investment tools, and budget accordingly.
4. Using Trusts
Some recipients of legal settlements use financial and legal tools like trusts to protect their money. This is often a wise move, as it can shield your settlement from other creditors, future lawsuits, estate taxes, or meddling by family or friends. But there are many types of trusts with different financial implications. You may also need to learn how to manage and fund a trust, especially if you'll need it later to care for ongoing medical issues.
5. Estate Planning
Finally, don't forget to update your estate plan, or create one if you haven't already. If the settlement is large and may last a long time, it needs to be factored into your estate plan if something happens to you. Your attorney can help with this, but an accountant can also help you crunch numbers, ensure equitable distribution, and prepare heirs.
Where to Learn More
Could you use help maximizing your settlement through negotiation, good tax planning, use of trusts, or estate planning? Start by consulting with an experienced accountant in your state today. With their guidance along with your lawyer's skill, you'll ensure a brighter future no matter what the reason for your settlement.