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$200,000 settlement money

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  • #1

    $200,000 settlement money

    I have a friend who is a single mother with two kids. She has no job or income, and has been living off friends/boyfriends somehow for the past couple of years. She was in an accident and is receiving a $200,000 settlement from the party at fault. I'm trying to figure out the best way for her to use it, and determine how much she'll really end up getting after taxes or fees or whatever comes with it.

    Any ideas on how to turn $200k into something positive for someone with no career path whatsoever? She is not responsible with money, and if I don't help her I know that $200k will be gone immediately on stupid things and her greedy friends' "investments."
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  • #2
    This may be a stupid question, but was the $200K to reimburse her for something? Medical bills, etc? Or was it for "pain and suffering"?

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    • #3
      You most likely will not be around forever, and as soon as you turn your back on your friend for more than a few minutes, she's going to burn through that money so fast it will make your head spin. I see no way that you can hand someone that is totally irresponsible with money and has no career aspirations over 200K and expect them to some how come out on top. If possible, maybe get an attorney that can help you have that money locked away in some sort of trust fund so that she can't get a hold of it. Force her to leave it to her children's education or something. Other than that, unless she changes her financial lifestyle, that money is as good as gone.
      Brian

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      • #4
        I know, I know...

        I just want to be able to offer her some advice on what to do with it and leave it at that. I know I can't force her to be responsible with it. I'd just like to think if I offer her some advice there's a CHANCE she might take it seriously for once. If she doesn't wise up and instead blows it all on the lottery, at least I tried.

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        • #5
          Originally posted by sweeps View Post
          This may be a stupid question, but was the $200K to reimburse her for something? Medical bills, etc? Or was it for "pain and suffering"?
          She was injured due to negligence at a retail store. Part of it is for "reimbursement" of medical bills and the other part is for "pain and suffering." The bills, thought, are already paid in full so the money will not go to any collectors and will be hers to use as she pleases.

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          • #6
            Got it.

            Well I think bjl has made some good points. Maybe a little less drastic would be to put the money in a CD and then she can just spend the interest. That would make it a little more painful (but certainly not impossible) to withdraw the principal than if it were sitting in her checking account. At 3% interest, that would be $500/mo to spend.

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            • #7
              Is she expecting the entire amount at once, or perhaps paid out over 4-20 years? As far as turning it into a career path: School, apprenticeship, or license , space and materials to run a small business for which she already has skills? Sounds like probably not the latter.
              "There is some ontological doubt as to whether it may even be possible in principle to nail down these things in the universe we're given to study." --text msg from my kid

              "It is easier to build strong children than to repair broken men." --Frederick Douglass

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              • #8
                How much influence do you have on this friend? What are the chances of her actually putting a good portion of it into a high interest savings account or long-term investments and heeding your advice? Even if she doesn't do that, advising her to set up a simple monthly budget to insure she doesn't blow through it in a couple years would be helpful. Then again, she could very well completely disregard your advice, think the new-found wealth is unlimited, and it may be gone in a few months. If she's like some people I know, I'm leaning towards the latter scenario.

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                • #9
                  Originally posted by sweeps View Post
                  At 3% interest, that would be $500/mo to spend.
                  This was my thought, but I'm not sure if she really ends up with the full $200k due to taxes or some other kind of fees or something. At $500/mo she could afford to rent a small apartment and use cash from part-time work to pay for food and other expenses. I figure if I can convince her to turn it into a seemingly "endless" supply of money (without spending it all at once!) that will play out well in her mind.

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                  • #10
                    Just some other thoughts... Does she have credit card debt? Might be a good time to pay those off and cut up the cards.

                    Also what about a prepaid 529 plan for the kids if her state offers it. Prepaid plans aren't my personal favorite, but for someone with spending issues, it could be a good way to fund the kids' education with a chunk of money up front.

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                    • #11
                      Originally posted by sweeps View Post
                      Just some other thoughts... Does she have credit card debt?
                      As far as I know, she has no debt of any kind. No credit cards, no car loan.

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                      • #12
                        Normally I am not a big fan of annuities but the advantage in this situation is that it converts it into an income stream that she can't easily destroy. She sounds too irresponsible to do the CD thing and there are some fixed annuities that aren't loaded with a lot of fees (aka no advisor would be selling them). Maybe take a look at that?

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                        • #13
                          Originally posted by Caoineag View Post
                          Normally I am not a big fan of annuities but the advantage in this situation is that it converts it into an income stream that she can't easily destroy. She sounds too irresponsible to do the CD thing and there are some fixed annuities that aren't loaded with a lot of fees (aka no advisor would be selling them). Maybe take a look at that?
                          Exactly what I was going to say. There are times when annuities are indicated. This may be one of those times. An immediate annuity would pay her a steady income stream for life and she couldn't touch the principal (without quite a bit of difficulty).
                          Steve

                          * Despite the high cost of living, it remains very popular.
                          * Why should I pay for my daughter's education when she already knows everything?
                          * There are no shortcuts to anywhere worth going.

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                          • #14
                            I like the annuity idea. I wonder if you should encourage her to take a small amount (like $2000 or so) to buy some nice clothes for herself and the kids might make her feel good about putting the rest of the windfall away.

                            Also, maybe she does want to make something of herself. Maybe she would like to go to school? You can get a 2-year degree to be a paralegal or a medical assistant or something. That's what I would do if I had no career and nobody to support me.

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                            • #15
                              Originally posted by boosami View Post
                              She was injured due to negligence at a retail store. Part of it is for "reimbursement" of medical bills and the other part is for "pain and suffering." The bills, thought, are already paid in full so the money will not go to any collectors and will be hers to use as she pleases.
                              Oh I need to hear the details on this. Please divulge.

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