settlement

A structured settlement is the payment of money for a personal/physical injury claim or a taxable damage case where all or part of the settlement calls for future periodic payments. These periodic payments are funded through an annuity purchased from a major life insurance company or Treasury Bond Trusts. By using highly rated and nationally recognized well-known life insurers or U.S. Treasury Bonds, you can be assured of financial security throughout the period that the payments are due under the proposal.

In the case of lawsuits settled out of court (and sometimes from a verdict), an increasingly popular alternative to a lump-sum payment is a structured settlement, which is a series of payments to the plaintiff over an agreed-upon time, including (if chosen) a lifetime guarantee. Typically, the payments are funded through an insurance company annuity or through U.S. Treasury Bonds. Rather than receiving them in one lump sum, the plaintiff will receive a stream of tax-free payments (if the settlement involves a personal injury) or tax-deferred payments (if the settlement involves taxable damages) tailored to meet future medical expenses and basic living needs. The settlement may build in an inflation factor so that payments periodically increase in size.

One advantage of structured settlements is they can be designed in a variety of ways. The structured settlement can include a lump-sum payment to pay up front for accumulated medical bills, attorney fees, and costs. It can include lump-sum payments at specific times in the future to pay for college tuition or to fund retirement at 65, with the bulk of the money being paid out in periodic, usually monthly, payments.

One very obvious benefit of a structured settlement is that it eliminates the risk of the recipient, whether an adult, minor, incompetent, disabled person, squandering the money in a short time. Statistically speaking the average person who comes into money whether it’s an inheritance, lotto, or settlement, the proceeds last less than three years.

Another benefit is financial: When Congress amended the federal tax code to encourage structured settlements, it explicitly provided that 100 percent of every structured settlement payment from a personal/physical injury would be exempt from federal taxes.

Guaranteed lifetime payments often stop at the recipients death. If a victim lives a normal life expectancy (which is what the periodic payments are based upon), everything works out. If the recipient dies earlier than expected, the survivors may find themselves with a loss of income they were counting on. The structured settlement may be designed to continue payments to the victim’s beneficiaries after death.

Before entering into a structured settlement agreement, consult with one of our qualified, experienced structured settlement brokers.