Q: What is a structured settlement?
A: A tax-free, legal settlement paid out periodically rather than in one lump sum – usually agreed on prior to judgment, or issued by a court order.
Q: How do structured settlements work?
A: The parties settling your claim or lawsuit fund the agreed-upon payments with specialized annuity contracts, which are issued by life insurance companies. An annuity is a type of investment that converts large, lump-sum balances into regular payments. This offers a stable income, often over many years.
Q: When should someone consider a structured settlement?
A: Structured settlements can be suited for cases involving the following situations:
- Plaintiffs or claimants who are temporarily or permanently disabled by an injury
- Cases involving minors or guardianship cases
- Wrongful death cases and the surviving spouse and/or children need monthly or annual income
- Severely injured clients who will require long-term medical, living expenses, or family support
Q: What are the benefits of a structured settlement?
A: Structured settlements offer many tax advantages, are flexible, and designed to offer financial protection over a long period of time.
Q: Why are structured settlements tax-free?
A: In an effort to protect injury victims from spending their settlement too quickly and risk running out of funds to cover extended medical expenses, lost or reduced income, or any unforeseen financial obligations, Congress passed legislation to offer injured parties an incentive to receive a series of tax-free, guaranteed payments.
Q: What are my payment options with a structured settlement?
A: Based on your individual needs, you can tailor your structured settlement to:
- Payout in equal increments over a span of years.
- Receive a large initial payment to apply to overdue bills, pay off a mortgage, or purchase needed items, like a new car, and then receive smaller subsequent payments to substitute for lost income.
- Payout in a future lump sum to cover an heir’s tuition.
- Supplement a retirement fund.
With proper planning, the options are endless.
Q: What makes a structured settlement different from settling for a lump sum?
A: The sole purpose behind a structured settlement is to distribute funds for many years over a period of time. It is not uncommon for settlement money to run out after accepting a lump sum payment, which could become problematic for those requiring long term medical care, needing supplemental income, or should an unexpected expense arise.
Q: Can I apply some of my structured settlement towards my family?
A: Yes. You may structure your settlement to transfer to a beneficiary upon your death. You may set money aside for your spouse or even designate proceeds be directed to an heir’s higher education.