What’s the urgency in referring your client for financial advice following a settlement?
Tax!
If your client is receiving a personal injury lump sum settlement and no longer able to work, the settlement funds can be contributed to a tax-free superannuation environment whilst still maintaining access to funds to support their ongoing living expenses.
However, there’s a catch. The contribution must be made within 90-days of receiving the settlement funds.
To qualify, the client needs to confirm that they satisfy the superannuation definition of “permanent incapacity”. This will enable the funds to be converted into a tax-free income stream.
Broadly, this means that the person is unlikely, because of the disability, to engage in gainful employment that they are reasonably qualified by education, training, or experience.
Importantly, this rule doesn’t only apply to adults.
It can apply to someone injured at a young age before they have completed their education, gained training, or developed work experience.
Unfortunately, often see people simply place their settlement funds in the bank while they “think about what to do next”. By the time they seek advice, the 90-day period has often expired.
The result?
Income generated from those funds may be taxed unnecessarily for many years to come, despite there having been an opportunity to secure far more favourable tax treatment.
Related Centrelink opportunities may also be lost.
For personal injury lawyers, an early referral to a specialist personal injury financial adviser will make a big difference to a client’s long-term financial outcome.
The best time to start the conversation is before settlement funds are received, not after.