Future Funding

A new way to treat tragedy

Twice, a worried Charles Younger, 38, asked the staff in the Stanford University Hospital deli very room about his newborn's inactivity. He got only brisk reassurances. Finally, after 40 minutes, Younger pleaded: "How can I tell if my baby is alive?" Anna was alive, barely. She was suffering from oxygen deprivation, and the child today is a quadriplegic. But at least Anna will have few financial worries. The reason: an increasingly popular new way to settle malpractice lawsuits.

Last week Anna's parents received the first payment of an annual allowance that starts at $81,990 and will climb to $5.5 million if she lives to be 78, as her doctors say she could. Soon she and her parents will also collect $1.2 million, of which $650,000 will go to their lawyer. The $122 million package, agreed to by both sides, is known as a structured settlement, and it offers something for everyone. The plaintiff escapes the risk of mismanaging a lump-sum payment and owes no taxes on the annuities. The defendant, or his insurer, ends up paying relatively modest amounts if, as often happens, the plaintiff dies early. And such settlements sound so generous. Actually, Anna's potential $122 million is equivalent to a properly managed trust fund of just $8.1 million.

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