What Is A Structured Settlement?
Unfortunately, many people suffer injuries in cars, at work, or at home and legal cases follow. Determining immediate and short-term costs, calculating future identifiable costs, and projecting less well-known costs, can be a daunting endeavor. Recovering from the personal, as well as financial costs, is risky and fraught with stress or anxiety. Compensation for general and special damages, as they as they are typically labelled, can seem astronomical. And pain and suffering compounds merely thinking about the next days and years. After all is said and done, getting a favorable judgment in court is one issue, but actually getting the money is another. Structured settlements often provide a viable solution.
With a favorable judgment for the injured (the plaintiff) settlements are often proposed to curtail further time consuming and costly litigation. "Settling" is presented as either a lump sum or as a structured settlement annuity. At times, a hybrid-solution of a lump sum combined with ongoing payments is the ideal solution.
Evaluating the pros and cons of each case is complex enough that lawyers typically enlist the expertise of accountants and tax professionals, among others, to protect their clients from a myriad of scenarios. Admittedly, lawyers focus on details, wanting to avoid damaging surprises in every aspect of the client’s case.
What Is A Structured Settlement Annuity?
Typically, structured settlement annuities, a form of insurance policies, are purchased by the Defendant, the losing side. The Plaintiff, also known as the “Payee” or "Annuitant," receives scheduled payments at regular intervals over a period of time. Annuities can be tailored to cover specific needs, expected demands or future contingencies; this underscores the reason to assemble a team of professionals.
Often, the offer of a structured settlement helps when the two parties - the plaintiff and defendant - are far apart in negotiations. Reaching an acceptable agreement is a “win-win” and can save both sides time and money.
Structured settlements are also less expensive and emotionally-involved than court cases, making claimants at least willing to consider the benefits. However, the entire process does require professional counsel and should not be done as a do-it-yourself effort.
What Are The Benefits?
A substantial tax benefit for monetary gains that have been awarded in a personal injury case is one leading benefit of structured settlements. Considered “tax free” under the U.S. tax code, there are also exceptions - such as the punitive damages, interest that settlements accrue, or attorney’s fees.
For minors, lump sums may be considered a preferable alternative as they allow for long-term investments or better financial planning to care for the long-term disabilities that may accompany a debilitating injury. Conversely, the ability to effectively manage the large sum may be an issue. The combination of lump sum and structured settlement may be preferable as this approach could address immediate needs, medical bills, rehabilitation, and allow the availability of funds if a credible cure is established in the future.
For seniors, structured settlements - with the offer of a steady, fixed stream of income without much risk - is a good solution. How the instrument is structured is critical, factoring in payments and spending habits for a secure retirement as well as the terms of the settlement to insure protection of a surviving spouse.
Are There Drawbacks to Structured Settlement Annuities?
The economy is unpredictable, complicating the decision for a structured settlement. Clearly, unknown changes that negatively impact the economy could make the annuity payments too small. Some plaintiffs express concern and look for protection against this risk. Professional advice from a financial professional helps provide reasonable context on which to base these decisions.
There are issues beyond the complexities of securing a structured annuity such as those associated with selling the annuity, and scammers who prey on those who are feeling desperate. For more information, speak with your legal and financial representative for counsel. Managing this process by yourself is inadvisable.