Legal Definitions - future value

Future Value refers to the projected worth of an asset or a sum of money at a specific point in the future, assuming a particular rate of growth or return over time. It helps individuals and legal entities understand the potential appreciation of current investments or the actual cost of future obligations, factoring in elements like interest, inflation, or investment gains.

Here are some examples illustrating the concept of future value:

• Personal Injury Settlement: Imagine a court awards a plaintiff a lump sum today to cover anticipated medical expenses and lost income over the next 30 years due to a permanent injury. To ensure the awarded amount is sufficient, the court's financial experts might calculate the future value of that lump sum. They determine how much the initial award, if prudently invested, would grow to be worth at various points in the future to meet the plaintiff's ongoing needs, accounting for inflation and potential investment returns.

• Trust Fund for a Child's Education: A parent establishes a trust fund for their newborn child, depositing an initial sum with the intention that it will cover university tuition when the child turns 18. The parent might consult a financial advisor or legal professional to calculate the future value of that initial deposit, along with any planned additional contributions, assuming a conservative rate of return. This calculation helps them understand if the current savings plan is on track to meet the future educational costs.

• Business Buyout Agreement: Two partners in a startup company draft an agreement stating that one partner will buy out the other's share in seven years. To establish a fair and equitable buyout price formula today, they might project the future value of the company. This involves estimating the current business value and then forecasting its growth based on expected revenues, market expansion, and profitability over the next seven years. This projection helps them agree on a mechanism for determining the future sale price.