Death and Taxes

Workers Compensation is one more area where death and taxes must be considered.

DEATH

Death of an injured worker who has not previously entered into a Compromise & Release for the indemnity part of the claim stops all benefits. Per California Labor Code 4700, “Neither temporary nor permanent disability payments shall be made for any period of time subsequent to the death of the employee.” Life expectancy is uncertain. An injured worker who is concerned about the injured worker’s family’s future welfare may want to get the value of those benefits now. The way to do this is by entering a Compromise and Release settlement.

An injured worker can create a potential estate for the injured worker’s family by cashing out the value of future indemnity benefits. The question then becomes how to value those benefits. Rather than a dollar-for-dollar payment, it may be appropriate to apply a discount for present value. In other words, a dollar in hand today is worth more than the promise of one to be paid years in the future. The reason is that today’s dollar can grow with proper investment. Parties may differ on the proper discount rate to use for this purpose. In cases where payments are due for the lifetime of the injured worker, disagreements can arise about the injured worker’s life expectancy.

TAXES

All payments made pursuant to a Workers Compensation claim, both medical and indemnity, are being paid due to a physical injury. Therefore, these payments are excluded from gross income for income tax purposes under Internal Revenue code section 104. Settling the claim for a lump sum does not change the tax-free character of the payment. Beware, however, that once that money is invested, the income generated from that principal is treated like any other income without regard to the source. The injured worker can choose to invest some of the settlement in a structured settlement which pays return of principal and tax-free investment income according to a schedule the injured worker chooses at time of settlement.

How to Win With Throwaway Issues

Some issues aren’t worth fighting over. Yet, parties and counsel frequently do take a stand when they might do better by taking a step back and just throwing that issue away.

It’s the Principle of the Thing

OK, you’re completely right on this issue—but what is the big picture? A fight over a $300 interpreter bill is counterproductive when you are trying to resolve a claim with a value of $600,000.

When mediation participants staunchly maintain, “It’s the principle,” they almost always mean, “It’s the money.” Particularly for the employer side, this is a business negotiation. Savvy negotiators know how to bargain away the little issues to get the optimum result.

Location, Location, Location

Perhaps the most common throwaway is where to convene the mediation. Southern California is a big place, and drives of several hours to get to a Board or mediation are not uncommon. Sometimes parties argue over where to hold the mediation. You can’t resolve the case if you can’t even agree where to get together to talk about it.

Usually, California workers compensation mediations are held in one of the attorney’s offices. Sometimes only the defense attorney’s office is large enough to accommodate the participants. But negotiations may be most fruitful at a location which does not intimidate the injured worker. Using the AA’s personal office and the reception area for caucuses (mediator sessions with only one side) may seem cramped, but if the injured worker is most comfortable there, that may be the best choice. If you are arguing over this issue, just give it up.

I Owe You One, Man

Negotiation is a give-and take process. Once someone has acquiesced on an issue, the other party usually feels somewhat beholden to give way on the next one. Minimally, your “generosity” with issues which are of little consequence to you can show how reasonable you are. These concessions help advance the mediation toward a successful conclusion.

Some negotiators invent issues to fight over just so they can have them in their back pocket to throw away. Throwing away your position on an issue can be the smartest way to negotiate to the best final resolution.