a structured settlement meaning

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What is a structured settlement and should you choose one?

The plaintiff can decide to get a lump sum payment or opt for a structured settlement. What is a structured settlement, and should you choose one? Here’s everything that you need to know about structured settlements. What is a Structured Settlement? With that said, a structured settlement is a payment made by the defendant in an annuity. Structured settlements are typical in civil cases including:

Why do I need a structured settlement?

• Structured settlement payment streams offer a wide range of flexible payout terms. However, they are rigid once the contract is set.
• In total, a structured settlement contract often yields more than a lump-sum payout would because of the interest earned over time.
• A structured settlement payout differs from cashing out an existing payment stream.

What do you need to know about structured settlements?

Tax-exempt structured settlements are awarded in the following cases:

• Personal injury
• Physical sickness
• Medical malpractice
• Wrongful death
• Workers’ compensation

What is an example of a structured settlement?

Examples of Structured Settlements. The types of cases that may be resolved with structured settlements are varied. Here are some structured settlement examples: Personal injury settlements These types of structured settlements resolve lawsuits filed by those who claim the actions of another person or a company caused serious injuries.

How do structured settlements work?

With a structured settlement, you receive your personal injury settlement or lawsuit award over time instead of in a lump sum. Personal injury plaintiffs who win or settle their cases can often choose to take their winnings as a one-time lump sum or as a series of payments over a period of time.

Is a structured settlement a good idea?

The best reason to support structured settlements is to have payouts of income to last throughout the beneficiary's lifetime. With guaranteed payments, there is less chance of losing principal to poor investments, spendthrift habits or the undue influence of family and friends.

Who owns a structured settlement?

A settlement agreement establishing the structured settlement will typically expressly state that the assignment company has all rights of ownership of the annuity. The structured settlement payee only owns the right to receive payments. The payee does not own the structured settlement annuity.

What is a structured settlement company?

Structured settlement purchasing companies, also known as factoring companies, serve those selling their structured settlement payments. These companies offer settlement owners lump sums of cash in exchange for the rights to future payments or portions of future payments.

What is a disadvantage of a structured settlement?

A major drawback of a structured settlement is that it may jeopardize the beneficiary's eligibility for public benefits, which may be particularly problematic when the person's medical needs are covered by Medicaid rather than private health insurance.

Do you pay taxes on structured settlements?

Under a structured settlement, all future payments are completely free from: Federal and state income taxes; Taxes on interest, dividends and capital gains; and. The Alternative Minimum Tax (AMT).

Can you cash out a structured settlement?

If you have a structured settlement in which you receive your personal injury lawsuit award or settlement over time, you might be able to "cash-out" the settlement. To do this, you sell some or all of your future payments in exchange for getting cash now.

How do I sell my structured settlement?

You can sell your structured settlement to a factoring company for immediate cash. Although you must first obtain court approval, you have the legal right to cash out your payments, either in part or in full, to a structured settlement buyer.

Can you borrow against a structured settlement?

You cannot borrow against your structured settlement, but you can sell all or a portion of it for a lump sum of cash. You can also seek pre-settlement funding or lawsuit advances to cover legal bills prior to a lawsuit settlement.

Is a structured settlement an asset?

Structured settlements are a guaranteed flow of income through the agreement term, commonly spanning years. Structured settlements are tax-free. Payments cannot be affected by the changes in the stock market. Payments are a valuable asset that can be valued and sold in a competitive marketplace.

How do you value a structured settlement?

You can find the present value of your structured settlement by using a formula or a present value table. The present value is the cash value of all future payments due to you minus a percentage set by the buyer.

Is a structured settlement the same as an annuity?

Structured settlements are awarded to plaintiffs in court cases. Annuities can be purchased by individuals. Annuity sales don't require court approval if you purchased or inherited the annuity. It's often faster to sell annuity payments than structured settlement payments.

Are structured settlements safe?

MYTH #2: Structured settlement returns are dependent on market conditions. Structured settlements are one of the safest, most stable investments on the market. The rate of return is locked in when the annuity is purchased, providing the claimant with a reliable investment, regardless of how the market fares.

How much does it cost to sell a structured settlement?

The lump sum you receive from the buyer, or factoring company, can be as low as 50 percent of your total future payments, but typically will be between 60 and 80 percent. So if you get $1,000 a month through your structured settlement, you could sell each payment for anywhere from $500 to $800.

Can you take money out of a structured settlement?

If you have a structured settlement in which you receive your personal injury lawsuit award or settlement over time, you might be able to "cash-out" the settlement. To do this, you sell some or all of your future payments in exchange for getting cash now.

What types of cases are more likely to result in structured settlements?

Examples of cases that may result in structured settlements include personal injury, workers' compensation, medical malpractice and wrongful death.

What is a structured settlement and how does it work?

Structured settlements are periodic payments made to a plaintiff who wins or settles a personal injury lawsuit. Instead of receiving a lump sum of...

Where can you sell your structured settlement payments?

You can sell your structured settlement payments to a reputable factoring company, otherwise known as a purchasing company. It is important to do y...

What is the difference between a structured settlement and an annuity?

A structured settlement follows a court process, and it is a stream of payments determined through negotiations between a plaintiff and a defendant...

How much does it cost to sell a structured settlement?

Selling a structured settlement is not a dollar-for-dollar exchange. The purchasing company will charge a discount rate, which typically ranges bet...

How Do Structured Settlements Work?

Legal settlements can be paid out in a one-time lump sum or through a structured settlement where periodic payments are made through a financial product known as an annuity. The key differences between these settlement options are in the areas of long-term financial security and taxes.

Why is structured settlement more than lump sum?

A structured settlement often yields, in total, more than a lump-sum payout would because of the interest your annuity may earn over time.

What happens when a plaintiff receives a lump sum settlement?

When a plaintiff receives a settlement through a one-time lump sum, they might spend it too quickly, robbing them of the long-term financial security that future payments could provide. Moreover, any interest and dividends earned if the lump-sum were to be invested would be subject to taxes.

How are legal settlements paid?

Legal settlements can be paid out in a one-time lump sum or through a structured settlement where periodic payments are made through a financial product known as an annuity. The key differences between these settlement options are in the areas of long-term financial security and taxes. When a plaintiff receives a settlement through ...

What are the pros and cons of structured settlement?

Structured Settlement Pros and Cons 1 Payments are tax-free. 2 In the event of the recipient’s death, the beneficiary can continue to receive tax-free payments. 3 Payments can be scheduled for almost any length of time and can begin immediately or be deferred for as many years as requested. They can include future lump-sum payouts or benefit increases. 4 Spreading out payments over time can reduce the temptation to make large, extravagant purchases and guarantees future income. This is especially helpful if the recipient has a medical condition that will require long-term care. 5 Unlike stocks, bonds and mutual funds, structured settlements do not fluctuate with market changes. Payments are guaranteed by the insurance company that issued the annuity. 6 A structured settlement often yields, in total, more than a lump-sum payout would because of the interest your annuity may earn over time.

What is the role of a judge in an annuity sale?

The role of the judge is to decide if the sale is in the best interest of the annuity owner. Other rules may apply depending on the details of your annuity contract and the laws of the state where you live. The Structured Settlement Protection Act of 2002 provides federal guidelines on such transactions.

What was the purpose of the National Structured Settlements Trade Association?

By 1985, the National Structured Settlements Trade Association formed to preserve and promote structured settlements to injury claimants through education and advocacy.

What is structured settlement?

A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum.

What is structured settlement factoring company?

Options exist for structured settlement annuitants to sell or transfer the rights to future periodic payments to purchasers of structured settlement payment rights, mostly known as structured settlement factoring companies.

What is an unassigned case?

In the less common unassigned case, the defendant or property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The defendant or property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. One of the reasons an unassigned case is less popular is that the obligation is not truly off the books, and the defendant or casualty insurer retains a contingent liability. While a default is a rare occurrence, contingent liability did come into play with the liquidation of Executive Life Insurance Company of New York. Some annuitants suffered shortfalls, and a number of obligors at the wrong end of unassigned cases made up the difference.

How many states have structured settlement laws?

State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. There are 47 states with structured settlement protection acts, created by a model promulgated by the National Conference of Insurance Legislators ("NCOIL"). Of the 47 states, 37 are based in whole or in part on ...

Why did structured settlements become popular?

The increased popularity was due to several rulings by the Internal Revenue Service (IRS), an increase in personal injury awards, and higher interest rates. The IRS rulings stated that if certain requirements were met, claimants would owe no federal income tax on the amounts received. Higher interest rates result in lower present values, hence lower cost of funding of future periodic payments.

Why do people want to get money from structured settlements?

They may want to obtain funds from the structured settlement in order to pay down debt, help pay for a house, help pay for a child's college tuition, or for other significant financial needs. At the same time, companies that buy structured settlements have been known to take advantage of beneficiaries' circumstances in order to obtain the settlements for a relatively small price.

What happens to the amount of periodic payments in a tort case?

Once the plaintiff and defense have settled the tort claim in exchange for periodic payments to be made by the defendant (or the defendant's insurer), the full amount of the periodic payments constitutes tax-free damages to the victim.

What is structured settlement?

A structured settlement is an important financial planning tool available to parties in personal injury, wrongful death and workers compensation litigation, that provides essential income stability with tax advantages. Protect your recovery with a structured settlement and create or augment a stable financial core.

What is the phone number for a structured settlement?

Click To Call. 888-325-8640. Alternate Uses of the Term “Structured Settlement”. While the term "structured settlement" is formally and traditionally applied to settlement for payment of damages involving physical injury, physical sickness or workers compensation (where damages or claims are excluded from gross income to the extent set forth in ...

Who can place structured settlement annuities?

Please read our section How Structured Settlements Wor k. Structured Settlement annuities are only placed by or in conjunction with brokers and consultants who hold active life insurance licenses (annuities, which are issued by life insurance companies, are grouped into this category for regulatory purposes) and are authorized by the insurers that issue the structured settlement annuities. Note that even if someone markets themselves to you as a settlement planner, they are acting in the capacity as agent or broker when placing, or co-broking a structured settlement. In New York State, individuals or companies holding life broker licenses may also act as structured settlement consultants, but may not be appointed by the annuity issuer. Such brokers and consultants are generally paid a one-time commission or share of the commission, by the annuity issuer (s), or co-broker, for placing the structured settlement annuity or other funding asset. Generally, state insurance law prohibits rebating of commissions.

Is lump sum settlement structured settlement?

The inevitable question "lump sum or structured settlement?". is one faced by many plaintiffs. It may come up at mediation or when the case settles. However it is not an either/or answer because many times both a structured settlement and a lump sum is the answer.

Is a workers compensation settlement tax free?

When the settlement of claims represent payment of damages for personal physical injury or physical sickness, wrongful death, workers compensation and the settlement is structured using a qualified funding asset (a single premium structured settlement annuity, or a trust fund that invests only in obligations of the United States government), the periodic payments are income tax-free.

What is structured settlement?

Structured settlements are used by courts in many different types of cases to replace or supplement income that was lost through the fault of someone else. Since they’re conducted by a third party, it also means someone doesn’t consistently need to associate with the person or entity that wronged them.

Why were structured settlements first issued?

Structured settlements were actually first issued after children were born with severe birth defects because of exposure to the drug Thalidomide in the womb.

How much money is issued in structured settlements each year?

It’s a solution that many people take advantage of: Nearly $6 billion in new structured settlements are issued each year, according to the National Structured Settlements Trade Association.

Why are cases settled?

Cases are often settled which award a significant amount of money to a minor in the form of a series of payments to cover the living expenses of a child. Such cases are often won because the plaintiff is able to demonstrate that the child’s life will be irrevocably changed for the worse.

When a party is deemed at fault in the death of a parent, a wrongful death case can?

When a party is deemed at fault in the death of a parent, a wrongful death case can emerge which results in a structured settlement.

When was the Periodic Payment Settlement Act passed?

Congress passed the Periodic Payment Settlement Act in 1982, which streamlined the use of structured settlements in personal injury lawsuits. The legislation shielded structured settlement payments from federal, state and local income taxes.

Does structured settlement affect Medicaid?

The structured settlement issuing companies function in a manner that shields owners as well. Structured settlements don’t affect an individual’s ability to qualify for other forms of aid. Meaning, if someone is set to receive a settlement, the money they receive from it does not affect their ability to qualify for Medicaid, Social Security and other disability benefits.

What is structured settlement?

Structured settlements can also be designed to step up payments over the years—starting relatively low and ending higher. Payments decrease over time. Structured settlements can also start high and decrease over time. This might be of benefit if you expect your income to increase over time. Delayed payments.

Why do people choose structured settlements?

Some people choose a structured settlement to avoid the hassles of managing a large sum of money.

Can a personal injury plaintiff manage a lump sum award?

Most personal injury plaintiffs lack the expertise to manage a large lump sum award on their own, and instead must hire a financial professional for advice on how to best manage and invest your asset.

Is structured settlement a good idea?

Instead of putting away the money to provide for their future personal and medical needs, some people will spend it on questionable investments or purchase expensive luxuries. If you think this might be you, then a structured settlement may be a good idea.

Should You Opt for a Structured Settlement or a Lump Sum?

The choice between a lump-sum payment and a structured settlement can have long term tax and personal consequences. Here are some of the issues to consider. Be sure to discuss these with your attorney or financial adviser.

What is structured settlement annuity?

A structured settlement annuity allows individuals to receive tax-free payments over time. Learn how structured settlements work and when they're used.

Why do we need structured payments?

Receiving structured payments can make it easier to manage recurring medical expensesor other costs associated with an injury.

What happens if you withdraw money from a settlement?

Withdrawing money from a structured settlement prematurely could result in tax penalties and you may also pay surrender fees.

Can you receive more from a structured settlement than a lump sum?

It’s possible that you may receive more from a structured settlement than you could through a lump sum payoutwhen interest is factored in. While a lump sum may be attractive, there may be a temptation to spend the money unwisely. And even if you choose to invest it, you still run the risk of losing money if those investments don’t pay off.

Who can work with the defendant and the plaintiff?

A qualified assignee can work with both the defendant and the plaintiff to negotiate the terms of the structured settlement. Specifically, both sides will need to agree on:

Can annuity payments be tailored?

Annuity payments can be tailored to fit the recipient’s lifestyle and needs.

Is structured settlement tax free?

Structured settlement agreements can be beneficial for individuals who are on the receiving end of these payments. Again, this is tax-free compensation so you don’t have to worry about payments affecting your tax liability. And if you’ve named a beneficiary for a structured settlement annuity, that individual could continue receiving tax-free payments after you pass away.

The Structured Settlement Process

A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. As part of the negotiations, a structured settlement may be offered by the defendant or requested by the plaintiff. Ultimately both parties must agree on the terms of settlement. A settlement may allow …

How Structured Settlement Issuing Companies Work

Your Right to Sell Structured Settlement Payments

Structured Settlement Laws and Regulations

Structured Settlements and Minors