Because structured settlements for compensatory damages are exempt from tax, so are profits from the sale of future payments. Structured settlement payments and proceeds from the sale of these payments are also exempt from state taxes and dividend and capital gains taxes. Nearly all structured insurance settlements are completely tax-free. This includes federal state taxes %26, taxes on interest, dividends and capital gains, and the AMT.
The reason for this is that the government believes that receiving compensation for physical injury, wrongful death, or workers' compensation is not an income gain. It is a restoration of the state before the loss. Technically, you don't have to declare that you have it, since it's not considered income. But there's no good reason to hide it either.
If a lender knows that you have a regular source of income from a structured settlement, you should improve your chances of getting a better deal. Structured settlements offer a variety of benefits, most notably the guarantee of future income. Unlike some financial investments, structured personal injury settlements usually have no tax implications. The decision to use a structured settlement must be made before finalizing the settlement agreement.
Instead of paying the cash to you or your lawyer, the defendant will send the money for the structure to a subsidiary of the life insurance company called the cession company. Additional investment options are available to claimants who are not interested in a structured settlement annuity. The bank may also request some information documents from the administrator of your structured settlement provider. However, if a structured insurance agreement involves money that would have been taxed under normal circumstances, such as a late payment agreement, divorce payments, punitive damages, lottery prizes, or liquidation damages, then it would be treated as normal income.
A structured settlement annuity (“structured settlement”) allows a claimant to receive all or part of a settlement for personal injury, wrongful death, or workers' compensation in a series of periodic income tax-free payments. If someone wants to give away their structured settlement, they also have to keep the original terms in place. The tax exclusion extends to interest and dividends earned by funds in structured settlement accounts. A structured settlement annuity may be ideal for many clients, including those customers in a higher tax bracket.
Structured settlement brokers (a special type of insurance agent) consult when a case approaches liquidation.