Have you brought a lawsuit against a company or an individual that
you claim caused you permanent harm as a result of their negligence or
intentional misconduct? (that’s just a fancy “lawyer” way of saying that
you’re hurt and you say it’s their fault). Did you win or settle your
lawsuit? If so, then you need to understand the basics about
structured settlements, as it may be an important option to consider.
Ordinarily, when you win a judgment or settle your lawsuit the
defendant has to pay you the judgment or settlement amount in a lump
sum. Let’s say, for example, you have a form of cancer caused by
asbestos called asbestosis. You sue the
asbestos
manufacturer, who agrees to settle out of court for a million dollars
(don’t get excited or disappointed; this is just an imaginary amount for
example purposes). You get a check for a million dollars, right?
That’s one option, but a structured settlement might make more sense
depending on your circumstances. A structured settlement pays you in
installments over time instead of a single lump sum.
Installment payments can be structured in a number of ways to suit
your needs and to protect you from inflation. They can range from a
simple yearly payment to complex arrangements consisting of an initial
lump sum payment, monthly indexed installments, deferred payments, and
special provisions relating to the future care or death of the insured.
Typically, the defendant would purchase an annuity (from an annuity
or insurance company) for a dollar amount that is paid up front. The
annuity provides regularly scheduled income payments as specified by you
and your attorney under the terms of the structured settlement.
What are the advantages of a structured settlement? Well, for one
thing, you are guaranteed a source in income for life. A second
important advantage is tax management: you may be able to substantially
reduce the taxes you would have to pay Uncle Sam on any investment
income that would otherwise accrue from investment of a lump sum
settlement.
Apart from the tax savings, it’s also important to "know thy self"
when making a decision about structured settlements. Are you the kind
of person who would head to Vegas, do a little world travel, buy lots of
toys, and basically blow your money until you have nothing left of your
million dollars in a year or two? If so, a structured settlement might
be the way to go.
There are some negatives, however, that you need to be aware of.
First, once you agree to it, you are stuck with the terms of the
structured settlement. You cannot change it at some later date. Hence,
it’s very important to be represented by a good attorney and tax advisor
who will help negotiate structured settlement terms that meet your
needs, such as protection from rising inflation. If you don’t expect to
live very long, on the other hand, you may want a settlement that
guarantees a minimum payment even if you die before the guarantee period
expires. This can protect your family or beneficiaries from being left
without financial resources.
Contrary to the suspicions of some uniformed plaintiffs, structured
settlements are not intended to and do not (assuming you are represented
by a decent lawyer) re-assess or change your award. They are simply a
device to allow for payment of your judgment or settlement over time, or
on an installment basis. They are flexible and can be structured to
meet many needs and life circumstances.
People who receive structured settlement payments however may decide
at some point during the life of the settlement that they need more
money in the short term rather than periodic payments over time. In this
case, some people opt for a structured settlement factoring
transaction. With this type of transaction the structured settlement
recipient can sell (or encumber) all or part of their future periodic
payments for a present lump sum.
While a structured settlement is not appropriate for everyone, they
can be very useful, depending on your needs. Your attorney can help you
evaluate whether they are suitable for you. Some additional links with
more information about structured settlements are included at the
bottom of this page.
This article is intended to provide general information only, not
legal advice. Please consult an attorney for advice in connection with
structured settlements or any of the issues addressed in this article.
If you are interested in selling your
structured settlement you can get great information and a quote here.
