WHAT DO I NEED TO KNOW ABOUT STRUCTURED SETTLEMENTS?

The Good and Bad

A Structured settlement is a financial arrangement that provides payments to an individual over several years or for the rest of their life. Structured settlements often arise from personal injury, wrongful death, or Workers Compensation lawsuits. The payments from structured settlements come from an annuity funded by the defendant or their insurer. This annuity will produce the income stream over the life of the annuity.

In some instances, a plaintiff may have the option to take a lump sum payment or a Structured settlement. Before deciding which option is right for you, be sure to discuss all your choices with your attorney. Below are some pros and cons to consider regarding structured settlements.

The Good

  • Structured settlements can help you manage a large amount of money over time. A large percentage of people who opt for a lump sum payment spend the money on frivolous expenditure and eventually have nothing left to show for it. If you’re receiving money because you were hurt and unable to work, this could leave you in financial bind.
  • A structured settlement may have a substantial tax benefit versus a lump sum payment. Often, funds from annuities are tax free.
  • Structured settlements are set up and managed by financial experts. They can help you plan to make sure your fund provides you with the cash you need to live on for the duration of your annuity.
  • Structured settlements can be used in mediation and negotiation when both sides may be far apart on a settlement amount. The upfront cash may be much less to the defendant, but over time will be worth a much larger sum of money due to the structured annuity.

The Bad

  • Once a structured settlement is set up, its payment structure is upheld by the court and may not be changed even though unexpected life events may warrant additional financial needs.
  • Your tax breaks could be forfeited if the IRS decides you have too much control over the proceeds from your structured settlement.
  • Some annuities can be held with a broker and doesn’t retain sufficient protection to cover your payments if the portfolio’s financial obligations outweigh its assets.

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The information contained in this article is not, nor is it intended to be, legal advice as Global Financial is not a law firm. You should always consult an attorney for advice regarding your individual situation.

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