what is a structured settlement | settlement definition | meaning of settlement

If you are financially savvy, you may feel you can invest the money in your settlement and turn a profit rather than waiting to receive the money for years on endd. In this case, it may be better to receive the lump sum payment, even if it is slightly lower than the structured settlementd. The exact details will have to be arranged with the payerd.

Advantages of a Structured Settlement

An insurance company may offer you a structured settlement if you win a claimd. You will not receive an immediate check for the money you are owedd. Instead, you will receive this money through periodic paymentsd. Depending on the terms of your settlement, you will receive different amount of moneyd. A structured settlement has many advantages over a lump sum paymentd.

You will usually receive more money by accepting a payment pland.
Financial planning, including tax planning, can be easier with the help of a structured settlementd.
Add additional income to your salary each year, rather than receiving a bulk checkd.
You can slowly account for the additional income over time with a structured settlement, making better use of the fundsd.
Structured settlements may have certain tax advantages over other forms of income making them affordabled.
If you are unsure how to invest your money, or are not good at budgeting, a structured settlement can offer significant protectiond.what is a structured settlement settlement definitionmeaning of settlement

Possible Disadvantages of Structured Settlements

You may think structured settlements are just a different way to receive the money a financial institution owes youd. However, a structured settlement rarely pays dollar for dollar what a lump sum paysd. Commissions, fees, and inflation can all affect the sum you actually receive in the endd. Further, since the money is held by another institution until it is paid to you, you cannot use it for any major purchase or investmentd. Most financial advisers believe, even conservatively invested, the money in a structured settlement will be worth far more through early investment than it can be worth through periodic payments over timed.

Can you garnish or lien structured settlement payments?

Structured settlement payments can be used as income to the recipientd. In a situation where wage garnishment is possible, it is also possible to garnish structured settlementsd. For example, if you are a borrower who has defaulted on a home loan, the lender may sue to to receive the payments you owed. Even if you have lost your job or receive no other income, if the lender finds out you have a structured settlement in your name, they can ask a judge to garnish the wages you receive from the settlementd.

Selling a Structured Settlement

If you are considering selling a structured settlement, be wary that some offers are too good to be trued. Structured settlements are designed to provide you with the many benefits, if you hold on to the pland. In some cases, you may find yourself in the middle of a structured settlement and may need a lump sumd.

Deciding to Sell a Settlement

Consider the benefits of selling your structured settlement, the first of which is a lump sum of cash d. Ask yourself why you need the money and whether it is it an emergencyd. Ask yourself if you simply looking for an increase to your incomed. Ultimately, selling a settlement will always leave you with less cash than if you allowed the settlement to matured. You should only decide to sell if you are in a situation where the immediate benefits will significantly change your financial situationd. For example, you may be facing default on a loan or foreclosure on your homed. In this case, a sale may be wised.

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Following Legal Regulations

Unfortunately, once you decide to sell, you will be caught up in a tricky world of legal regulationsd. About 60 percent of all US states forbid the selling of structured settlements d. If you are allowed to sell, you must do so in the midst of federal regulationsd. Always ensure you follow all state and federal laws, because you can risk losing your entire benefitd.

Entertaining Offers

You do not have to accept the first offer you seed. Typically, once you decide to sell, you will find advertisements from companies that specialize in purchasing structured settlementsd. These companies can survive because they turn a large profitd. Instead of going with the first offer, wait to entertain offers from different companies and individualsd. You may find that different buyers offer significantly varied offer prices and it will be worth your while to wait for the best offer you can findd.

Tax Consequences to You and the Buyer

Structured settlements are designed to help individuals, who are receiving money as the result of injury, to receive the maximum benefitsd. This means the federal and state government overseeing the payments will allow for certain tax benefits; namely, the sum may be taxed at a lower rate than the other parts of your income annuallyd. Once you sell the settlement, however, you fail to receive these benefits in the futured. The buyer of your settlement may also lose the benefitsd. In fact, your sales income on the settlement may be taxed at a very high rate, further compromising the benefits of the saled. Always speak to a lawyer about the tax consequences before moving forward with a saled. Also, consult a CPA or accountant for important tax consequences as welld.

Things to Consider when Entering into a Structured Settlement

Your insurance company may attempt to arrange a structured settlement plan if you win a claim against the companyd. With this arrangement, the structured settlement will allow periodic payments to you rather than providing you with a lump sumd. This may sound like a fair deal, but look out for these problems with structured settlementsd.

Periodic Purchases

If you would like to make a large purchase during the life of your settlement, you may not have the funds available to do sod. For example, you may know your insurance company is currently paying out $200,000 to you in $20,000 annual paymentsd. If you want to buy a house this year, the annual payments do not help as much as the lump sum wouldd. Consider this scenario when setting up your arrangementd.

Investment Potential

You may be able to invest the money you receive in a lump sum today, turning the money into a much greater value in the futured. If the insurance company holds onto the money, there will be no investment potentiald. For this reason, it can be in your best interest to take a lump sum settlement even if the figure offered is lower than the total payout would be over time with a structured deald.

Excessive Commissions

Beware of commissions your insurance company, agent or attorney is charging during the process of setting up a structured settlementd. It is not uncommon for the agent to charge high fees for paying out a settlementd. Check the terms of the settlement contract before agreeing to any commission structured. Make sure that a commission is disclosedd.

Overstated Value

Your insurance company may attempt to overstate the value of the payments it is making to youd. In doing so, it may be eligible for specific rebates, legal protections or methods to otherwise reduce the actual money it will pay you as part of the settlement d. Build your contract to ensure that any financial benefits given to the insurer, as a result of your contract, come directly to you rather than staying in the company’s pocketd.

Conflict of Interest

Make sure that your attorney has no ties with the insurance company you are filing a claim againstd. In some cases, attorneys will earn a commission by convincing their clients to accept a structured settlementd. It is illegal for an attorney to do this without letting you knowd. However, it is very difficult to track down and catch the culprits so it happens all the timed.

Life Expectancy

Do not accept a structured settlement if you feel you will not be around to see the paymentsd. This is an unfortunate reality if you receive your settlement late in lifed. It is in your best interest to assure payments are made to you immediately, when you need it most, rather than at a point in your life when you cannot appropriately invest, save or spend the moneyd. Consider your financial needs when you accept a structured pland.

Structured Settlement as an Annuity

To carry out these periodic payouts, the defendant will often purchase an annuity from an insurance companyd. That way, the defendant can remove your obligation from its books and transfer the responsibility for payment to a company with expertise in managing periodic paymentsd.

Some experts argue that placing the annuity with an insurance company is a more stable alternative than relying on the financial health and stability of defendant corporationsd.

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 consequencesd. Here are some of the issues to considerd. Be sure to discuss these with your attorney or financial adviserd.

What Is Your Tax Obligation?

Whether your award is taxable or tax-free will depend on whether it is intended to compensate you for physical injuries or sickness or whether the damages are punitive (meaning they are intended to punish the defendant for its actions)d. (Learn more about damages in personal injury casesd. ) The form of the payment — lump sum or periodic payments — can also affect your tax obligationd. The law is complicated so check with a tax attorney or tax professionald. (Learn about taxes and personal injury awardsd. )

How Will You Use the Settlement Money?

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Do you need the money right away to pay past due bills or replace an aging car? Do you expect to use the settlement to replace future income? Do you want to give it all away to charity? Your goals for the money will have a large impact on how best to structure the awardd.

Do You Have the Skills to Manage a Large 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 assetd. Unless you have a qualified friend or relative willing to advise you for free or at a reduced cost, you will likely have to use some of your new cash to pay for this adviced. Some people choose a structured settlement to avoid the hassles of managing a large sum of moneyd.

Are You Likely to Blow a Lump Sum Award on Risky Investments or Luxuries?

Having access to a large sum may be too enticing for some plaintiffs who do not have the skills to manage a large awardd. 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 luxuriesd. If you think this might be you, then a structured settlement may be a good idead.

Will Friends and Family Look for a Handout?

People who have received large lump sums in personal injury cases report that relatives, friends, and even strangers often ask for a loan, to pay their bills, or money to invest in their “next big idead. ” Taking the award as a structured settlement can help you resist this sometimes intimidating pressured.

Getting the Right Advice

Your attorney will likely have helpful opinions and will negotiate the terms of the settlement on your behalfd. Regardless of whether you choose a lump sum payment or a structured settlement, it is worth your while to consult with a tax professional, accountant, or financial planner to determine how the structure of your award or settlement will help you to maximize your outcome based on your personal circumstances and to achieve your financial goalsd.

How is a structured settlement created?

The unsuccessful party in a lawsuit (or his or her insurance company) purchases an annuity that exactly fulfils the required payments to the successful partyd. The annuity is non-commutable, non-assignable and non-transferabled. This means no one (including creditors) can change or stop the annuity under any circumstancesd.

The annuity payments are generally guaranteed for a specific period by the insurance industry, but the original defendant is ultimately responsible for every payment to the claimantd. The “guarantee period” may be for the first few decades on a life annuity or for a fixed-termd.

The right to structure a settlement must be negotiated during the settlement process and must be part of the documented settlement agreementd. The funds to purchase the annuity must pass from the defendant or their agent to the annuity company or its agentd. You cannot receive settlement funds first and then purchase a structured settlement annuity yourself after the factd. The annuity must, in fact, be purchased by the defendant or insurance companyd. During the weeks leading up to settlement, a claimant should make sure his or her lawyer is preserving the right to structure any part of the settlement d.

In theory, anyone with a life insurance licence can sell a structured settlement annuityd. Without specialized experience, though, a structured settlement may be improperly executed leaving the claimant with significant tax liabilityd. Structured settlement brokers (of which there are about a dozen in Canada) are well known in the legal profession and insurance communityd. The structured settlement broker will usually prepare all the required documents and help calculate the appropriate structured.

For legal advice about structured settlements, you should consult a lawyerd.