Article: What is a structured settlement?, Car Accident Questions

What is a structured settlement?

What Is Important To Know About A Structured Settlement

When a plaintiff wins or settles a case for a large sum of money, they have the option of being paid using a structured settlement. Plaintiffs can take their financial award in a one lump sum. They can also receive their financial award in a number of payments during a specified period of time. This is known as a structured settlement. A number of things must be considered to determine if it is in a plaintiff’s best interest to take a structured settlement. A plaintiff’s tax liability, how the money will be used, as well as the need for money management and more are all considerations.

History

Structured settlements became a popular option during the 1970’s. They were an alternative to a lump sum settlement. A number of rulings by the Internal Revenue Service (IRS) made it possible, in many situations, for claimants to owe no Federal income tax on any legal settlement they were awarded. Structured settlements have become a part of tort law in a number of different countries. In many cases, a structured settlement is offered to decrease the legal costs and other costs associated with a court trial.

How It Works

When a plaintiff gets a financial award and chooses a structured settlement, they will receive predetermined payments for a specified period of time. Should a person win $100,000 as a financial settlement, they could choose to be paid $10,000 a year for ten years. The $10,000 could be divided into payments made monthly or quarterly. The payments for a structured settlement can be used to provide a plaintiff money when their individual situation requires it.

Qualified Cases

A large percentage of structured settlements are $50,000 or more. These are often cases involving temporary or permanent disabilities, long-term medical care, dependents and surviving spouse of a death case. Structured settlements are also recommended for minors or mentally incompetent individuals, brain damage cases, severe injuries, as well as decreased life expectancy. It can also be used for settlements involving personal damage, wrongful termination, property loss, sexual harassment and more.

Large Initial Payment

A plaintiff may ask for a percentage of the financial award initially, and then have the rest of the payments be structured. In this situation, a plaintiff may have a number of bills that are overdue. They may need to purchase a number of items such as a vehicle, household items and more. The subsequent payments can be used as income or an income supplement.

Structured Settlement Annuity

It is possible for a defendant to purchase an annuity from an insurance company. This will eliminate this debt from its ledger and place the responsibility for making payments to a company with experience in managing payments made during specific time periods. Many legal experts recommend a structured settlement annuity because it provides a stable option. It’s not a good idea to depend on the financial stability of a defendant company.

Increase Or Decrease

It is also possible for a structured settlement to be designed so the payments grow over the years. They could start small and increase at a certain rate each year. This may be a popular option for people who intend to retire in a specific amount of time. It can also work the opposite way. Payments can be large in the beginning and then decrease over time. This may work well for people who intend to return to work after a certain amount of time.

Tax Benefit

A structured settlement provides a plaintiff with important tax benefits. Personal injury settlements have a tax-free status. However, there are certain situations where portions of a court settlement could be taxable. This could be the case if an award is for punitive damages. The interest that accrues on a settlement could also be subject to tax. A tax professional should be consulted to know how taxes impact different settlement situations.

Protected

Most states have insurance laws that protect annuities. This means when a structured settlement is paid using an annuity, the payment obligations of the insurer will be guaranteed by the government. Federal law does not permit an insurer to declare bankruptcy. Most states have a process in place to protect customers if an insurance company becomes insolvent. This means an annuity will continue to be paid no matter the financial troubles of an insurer.

The Lamber Goodnow team, together with our co-counsel firms in Chicago, are well-versed in all personal injury matters. Our Chicago personal injury lawyers never charge a fee, unless we win your case. Get a risk free consultation today.

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