Structured settlements are great options for many different cases, such as personal injury lawsuits, mass torts, and more. They often help expedite the conclusion of a lawsuit. a structured settlement provides stable income for life with built-in budgets and minimum taxes. The main advantage of a structured settlement, in addition to the limitations on waste, is the tax-free status of the profits involved.
All settlements are tax-exempt, but if you invest that money and earn interest, that accrued interest is taxable. Interest earned on the annuity of a properly structured settlement is not taxable; they are all considered part of the settlement. Similarly, by providing a steady stream of income, structured settlements offer a layer of protection against poor investment decisions. Finally, structured settlements are tax-free and are also more difficult for creditors and former spouses to access.
If you choose to receive payment for your lawsuit through a structured settlement, you can determine if you start receiving the funds immediately or at a later date. Taking the prize as a structured agreement can help you resist this sometimes intimidating pressure. Another disadvantage is that the return on a structured settlement annuity is established when it is purchased, which means that you are subject to prevailing interest rates. The way structured agreements work can vary, but generally the paying party buys an annuity from an insurance company and the injured party receives the payments over a period of years.
If you agree to take your compensation as a structured settlement, rather than receiving a large amount from the plaintiff, you will receive periodic payments over a fixed number of years. You can “collect” your future structured settlement payments by selling them to a factoring company at a discount if you need immediate cash. An assigned case is a qualified case, meaning that settlement proceeds qualify for tax benefits, and the defendant's payment obligation must align with the provisions of the Internal Revenue Code. These trusts can be used to maintain a beneficiary's eligibility when they receive a lump sum payment or a structured settlement if the payments are made in the trust's name.
While there are many positive aspects of structured settlements, a prudent settlement planner will balance the expectations, objectives and needs of the claimant in order to allocate the settlement in the most effective manner. This and other benefits of a structured settlement are not always apparent to the recipients of the settlement or their financial advisors. Choosing between a one-time payment and a structured settlement can have long-term tax and personal consequences. Structured settlements can also be designed to increase payments over the years, starting relatively low and ending high.
A structured settlement is an agreement that provides the plaintiff with regular payments over several years or for the rest of the plaintiff's life. If you are ready to receive a structured settlement or have any questions about this topic in relation to a personal injury or other civil case, Legacy Enhancement can offer you the guidance you need.