Many years ago, injured people who obtained settlements would receive one lump cash payment. Sometimes, the money would be spent and not available for future needs. In the 's, another settlement arrangement was created where injured persons could receive periodic payments over a set time period or lifetime.
The recurring future payment is known as a structured settlement. Though both lump cash and structured settlement payments are nontaxable, structured settlements became popular for a couple of reasons.
The payments were "guaranteed", the person receiving the future payments could not spend the entire settlement proceeds, did not have to worry about managing, investing or overseeing large amounts of cash and paid no taxes on the proceeds.
However, there are drawbacks. Though the funds are seemingly protected, the guarantee is only as strong as the financial backers e. A structured settlement is inflexible. The recipient of the structured settlement cannot own the annuity policy that makes the regular payments, assign the payments to another person, change the payment schedule or accelerate the money.
If a person who receives structured settlements is in immediate need of cash, they cannot ask that the payments be increased or that the annuity policy be cashed in. Realizing that some injured persons were in dire need of cash, companies advertised they would purchase structured settlements for immediate cash. The companies do not explain that the cash payment is at a substantial discount. Let me explain. When a person first accepts a structured settlement, she is giving up an immediate cash payment in exchange for regular future payments.
The future payments look like a better deal because the total amount of payments the payout is larger than a present lump cash payment. But future money is worth less and less because of inflation.
The lump sum settlement is the traditional method for settling a case. The defendant sends you a check, you cash the check, and the case is over. But if you are settling a larger case, there are two good reasons for doing a structured settlement. First, the structure guarantees that you won't spend the money too fast. Sadly, many personal injury plaintiffs who receive large windfalls blow through the money in an astoundingly short time, and then, maybe two or three years later, have nothing left.
Second, the structured settlement saves you money on your taxes. While the money that you receive in a personal injury settlement is usually not taxable, you do have to pay taxes on the interest and dividends that you receive on the settlement money after you invest it.
That can be a large tax payment every year. With a structured settlement, you have far less money sitting in the bank, and thus a much lower tax obligation. The main advantage of a lump sum settlement is that you get the money now.
If you need to pay off bills from the settlement, that is an important reason to get all of the money up front. If you are planning to start a business or buy a house or car with the settlement proceeds, then you need the money now. And if the settlement simply isn't that large, you get no significant advantage from a structured settlement. Tell the adjuster that you want your money as a lump sum settlement, to be paid after signing the release and other settlement documents.
Browse All Personal Injury Topics ». Those needs include:. In some cases, a minor is involved in a personal injury, product liability claim, or other scenarios where the child was severely injured. Like adults, minors can also benefit from structured settlements. The key difference between adults and minors is that minors can not control their settlement payments, so the parents are in charge.
The parents must follow the court orders on spending the settlement money until the child has reached age You might have seen commercials during daytime or late-night television describing selling your annuity for cash. These are called secondary market annuities. Secondary Market Annuities is when a 3rd party company gives a settlement owner a lump sum of money for the structured settlement payment. Basically, you sell your settlement payments at a heavy discount via a settlement transfer in exchange for a lump sum of cash.
This transfer is called a Structural Settlement Factoring Transaction. Find out more about Secondary Market Annuities. If you need help or would like to buy structured settlements, we have partnerships with settlement firms to provide the best policy for you. Structured Settlements can be sold, and there is no set formula or standard on how to sell the payments. Seek an attorney or accountant to explore settlement planning options. Each state divides assets in either an equitable division or community property approach.
However, if the state takes the community property route, the state can divide the settlement regardless of whether the settlement was received, whether before or during the marriage. Since the structured settlement annuity is essentially an income annuity, inheritance is treated as such. If the annuity is set up for life contingent payments life only, joint, and survivor , then typically, there is no death benefit. This exception would be if a guaranteed term single or joint-life with a period certain were put into place.
If the settlement is structured to pay over a guaranteed fixed period of time, the annuity can normally be inherited for the remainder of the guaranteed installments.
0コメント