What is a Structured Settlement Payment?

What is a Structured Settlement Payment?

Structured Settlement Definition 

By definition, a structured settlement is a “financial or insurance arrangement whereby a claimant agrees to resolve a personal injury tort claim by receiving periodic payments on an agreed schedule rather than as a lump sum”.

While by definition a structured settlement seems fairly straightforward, the ordinary person does not have much exposure or knowledge of how the process to produce one really works.

You may have received one, be evaluating one now, or have considered one but opted for cash. Maybe you already have one, but you may not know how they operate and why they are set up in the fashion in which they are.

The biggest and most noteworthy part of a structured settlement is that they are tax-free, which is definitely a huge incentive to the operation since who wants to pay taxes?

Structured Settlement – How It Works

Regardless of one’s current knowledge, a structured settlement can be summarized in three simple categories, as there are three specific areas in which a structured settlement is typically awarded.

Legal settlements from personal injury cases, wrongful death cases and workers’ compensation claims are among the most common reasons people receive structured settlements:

Personal Injury 

A plaintiff wins a large jury award or settles a claim for a large sum, and the amount is structured into monthly or annual payments over time. Those payments help recipient pay for medical expenses or other costs.

Wrongful Death 

A common way to compensate the family of someone whose death was the subject of a wrongful death claim.

Workers Compensation 

Structured settlements are used to pay workers who get injured on the job while they recover from their injuries.

Once awarded a structured settlement, there are additional options that one has to consider when exception the final agreement.

Cash Vs. Periodic Payments

With structured settlements, it helps keep the individual who is receiving the cash on a responsible budget. Instead of receiving an upfront sum of cash, through a structured settlement one will receive payments over a term of years or a lifetime. 

However one chooses to receive the payments from a structured settlement, the payments are sure to be tax-free. Structured settlement payments also last through one’s lifetime, which can provide one with increased financial security and ease. 

Also, should you die before the settlement runs out, your beneficiary will continue to receive the payments. In contrast, if a claimant accepts an all-cash settlement, there is no assurance that funds will remain after death for a named beneficiary.

Benefits Of Structured Settlements

benefits of structured settlements

There is a reason that structured settlements are a very popular form of settlement in personal injury and product liability cases. The reason for this is that they offer up a host of benefits, both to the plaintiff and to the defendants.

Of course, a structured settlement is not always the best route to take, so it is important to consult a financial advisor if you are involved in a situation/lawsuit where one could potentially become a part of the outcome.

Benefits of Structured Settlements : For Plaintiffs

The plaintiff is the party in a lawsuit that is suing the other party. In the case of personal injury or product liability, they have often been injured or disabled because of the original incident.

If the plaintiff is awarded a settlement in their case, choosing a structured settlement has a number of benefits. these include:

Increased earnings : Structured settlements almost always pay out more over time than a lump sum settlement.

Tax-exempt status : Structured settlements are tax-free on both a federal and state income tax level.

Predictable payments : Payments made on structured settlements are required to arrive at set dates, offering peace of mind and convenience.

Different options : There are a number of options that you can choose/qualify for your structured settlement. These include lifetime payments, periodic payments, lump sums, and combinations of all three.

Initial payout : Structured settlements often come with an initial lump sum payout for a portion of the settled total. This helps you deal with any immediate expenses that you might encounter.

Financial security : Structured settlements offer financial security, especially if you are unable to continue working and generating an income.

Beneficiaries: You can transfer your payments to a beneficiary in the instance of death.

Benefits of Structured Settlements : For Defendants

Those that are required to pay the settled amount can benefit from structured settlements in a variety of ways as well. The primary way that defendants benefit from structured settlements is by having the ability to pay the settled amount over a period of time. 

Making payments like this ensures that they don’t have to come up with the entire amount of money all at once. Of course, they will generally have to pay out more money in the long run, but often this is outweighed by the benefits.

Structured settlements particularly benefit defendants in high value cases where a lot of money is involved in the settlement. They are especially advantageous for large companies or organizations.

Structured Settlements in a Divorce

A structured settlement is a promise to pay a fixed amount of money over a fixed amount of time. It is a very flexible type of settlement, and can be created to fit the needs of the parties involved. 

The individual that will receive the payments can elect to receive a small lump sum up front, to be followed up by periodic payments of a set amount of money for a few years all the way to a lifetime.

This concept is often used in workers compensation or in injury claims, but these types of settlements can also be used should the unfortunate circumstance of divorce arise. That said, using structured settlements in the circumstance of divorce, requires a great deal of planning and detailed consideration.

When used in divorce circumstances, structured settlements can be a useful tool in negotiating the division of property or paying for tuition fees or child support. 

The financial necessity of the receiver will be negotiated and will be covered by periodic payments. These could provide a monthly income, college funds or retirement savings.

Advantages To Payee

For the payee, the main benefit is that these payments will end all contact with the spouse, as the life insurance company chosen will act on behalf of the payee. Once the court has approved the contract, it gives the payee the clean break they were hoping for and will prevent any chance of contact from their ex-partner in the future. additional benefits include:

  • The discounted cost-of-payments offer a potential for savings.
  • A non-qualified-assignment will keep this obligation off-the-books.
  • Can end the contacts and obligations with the ex spouse.
  • Promissory-notes will not cause any liens on assets.

Settlements also tend to be the simplest and most straight-forward process and can reduce valuable time.

Advantages To Receiver

The biggest advantage of a divorce-structured settlement is the security that is provided with an annuity. During the process, the receiver will be required to discuss their financial needs for the future; the payees attorney will then craft a periodic payment proposal that caters to those financial needs.

Once the agreement is signed and approved by court, there is no fear that the ex-spouse will go back on their promise or try to reduce the payments arranged, as the lump sum would have already been passed to a life insurance company. It is set in stone and the payee has to respect it. additional benefits include:

  • The settlement agreement will be guaranteed by a major life insurance company.
  • Plans are flexible, allow for multiple income streams, and long term payout.
  • Depending on the state, the annuity may be creditor-proof.
  • The settlement is not subject to an attack by creditors of the ex-spouse.

Furthermore, the payments are tax free and so the receiver is able to enjoy the full amount of the agree payout. When choosing an annuity plan, it is worth considering all options available to you and they are flexible and allow for long-term payouts. If unsure, the payee should discuss the best options available with their attorney.

A structured settlement replaces one lump payment with smaller payouts over time and while it is a concept frequently used in workers compensation and injury cases, it is more recently also being used in divorces. It is a positive solution, which unlike lump-sum settlements, can make for a clean financial break.

Structured settlements are a continuing financial tie between former spouses. Both lump-sum settlements and structured settlement demonstrate the variety of ways a marital estate can be divided so that former spouses both get something of what each wants.

Structured Settlement For Minors

Structured settlement child support makes sure that the well being of minor children are protected by law should the unfortunate circumstance of divorce come into play.

Should divorce happen, the courts will place the emphasis on the child’s future, and will be considered a high priority when the discussion turns to financial settlements. The courts take on the role of making sure that children have access to the basic-rights as all of us, such as:

  • Food
  • Shelter
  • Health
  • Education

A structured settlement for child support affords the most protection for a minor child. through a structured settlement, it ensures that there is no chance that a payment will be missed. 

Unlike a court order for child support, which makes it easier for a parent to not pay child support, a structured settlement helps guarantee that a child will be taken care of and that the funds will be available.

Structured Settlement Annuities For Minors Calculator

Various approaches to calculating the amount of child support award payments exist. to figure out an amount for child support, it is first suggested to produce a monthly budget for the child. 

Allocations for household expenses such as rent/mortgage, utilities and food, and clothing costs, extracurricular activities and camps, should all be added.

After both parents have come up with a budget, through legal advice, it can be determined how much a parent should contribute through a structured settlement. 

It is also a good idea to determine any cost of living increases on say increases in your income. Many jurisdictions consider multiple sources of information when determining child support:

  • Income of parents.
  • Number and ages of children living in the home.
  • Basic living expenses and school fees.

If the child has special needs, such as treatment for a serious illness or disability, these costs may also be taken into consideration.

Minor Settlement Trust

Parents always make the attempt to gain full control over the management of the funds, but the courts frown on this concept and more times do not allow parents to fully control the funds. The funds within a structured settlement will be taxed yearly on the interest if the total surpasses a set cap.

These protected accounts usually achieve the same rate-of-return as a savings-account. There have been many studies that show that most such cash settlements for the kids are non-existent within five years.

Everything is considered in advance of the settlement. the child will be taken care of until they become eighteen or older, and in advance. An annuity will be purchased, and a large life insurance company will make the payments, which prevents any mal-use or negligence of the funds.

Settlement Check for Minor

If the custodial parent tries to cash-out of the structured-settlement, they will have to convince a court that it is in the best interest of the child. Each state has its own structured settlement protection act, (sspa). 

The court will make sure that the guardian parent has a source of income and does not have a need to rely on the funds from selling the settlement.

Cashing out for a lump-sum is something that is possible but needs to be heavily proven and there needs to be a strong argument that the parent will be responsible with the funds. 

Before approving any cash-out, the court takes into consideration not only the medical needs of the minor-child, but all the other opportunities that a child could enjoy, such as: Educational requirementsfoodclothing and shelter. There may also be provisions for expenses of vacations, and for extra-curricular pursuits.

Before the sale of a settlement would be approved, documented-proof of the parent or guardian’s income must be provided. The grounds for the petition to sell for a lump sum of cash must be valid, and the court must be convinced that the reason for selling now, must be more important than the security for the future of the child that it provided.V

All You Need to Know About Structured Settlement Consultants

When working towards receiving a structured settlement, it is typically necessary to work with a certified structured settlement consultant

These professional consultants are the experts in the field of structured settlements and are known to fight to get the best settlement possible for their clients. Structured settlements are typically the direct result following an injury, disability or wrongful accident or even death.

Structured settlements result in payouts over a period of time. the payout one receives as a result can vary depends on the severity of the situation and the consultant handling the settlement.

Once an individual has decided that they want a structured settlement, it is necessary that they locate the right structured settlement expert. Areas to cover and check off your list when looking for a consultant include:

  • Referrals and reviews.
  • Reputable and trustworthy.
  • No association with insurance company.

Referrals and Reviews

Before plunging into a structured settlement it is necessary to find the best match. One can find a certified structured settlement consultant either locally or through the internet. 

With multiple avenues to explore and so many outlets on the internet, one is sure to be able to have an abundance amount of second hand reviews and recommendations. 

However, the best way possible is to ask for references. maybe you have a friend or member of the family who has used the services of a structured settlement consultant before. 

If you do not know someone in your immediate life you should also be able to call a consultant that you might potentially be interested in and ask him or her to provide references.

How To Find Structured Settlement Consultant?

Next in the process to find a structured settlement consultant, you want to make sure that your potential consultant has a stellar track record and are also professional, not to mention you want to make sure he/she is someone you can feel comfortable with and trust. 

Talk with a few companies. find out how their settlement process works. Seek out a friendly voice. Getting a settlement might be stressful so clients want a certified settlement consultant who is trustworthy and supportive. 

If you end up choosing to work with a non-local company found on the internet, you should make sure they are certified and known. A reputable certified structured settlement consultant can get a better-structured settlement set up for their client. 

While you may not be able to see exactly how much cash consultants have been able to receive for other, you should be able to frankly ask your consultants as many questions as you would like without feeling any pressure.

No Association with Insurance Company

Iit is also important that individuals who are searching for a consultant make sure that the proposed consultant does not have any ties to an insurance company. This can be tricky since so many consultants have a hidden agenda and actually do have ties to an insurance company. 

To make sure that there is a guarantee that the consultant has no loyalty to the insurance companies, look for a consultant that offers a sworn affidavit stating that they have no insurance ties. This is especially important because it is necessary that consultants have the client as their number one priority.

Make sure the consultant does not work for liability carriers, does not represent the structure annuity carriers and does not support either of those types of carriers. 

Lastly, find out if there are any complaints against them with the better business bureau as a less than stellar rating would ultimately be a deal breaker and the biggest warning sign of all.

How to Name a Beneficiary on a Structured Settlement Annuity?

It is not something one wants to think about, but it’s an unfortunate reality that everyone’s life will come to an end on earth at one point or another. Specifically, if you have a structured settlement, it’s important to put some thought into what may happen to the structured settlement should you die unexpectedly.

Setting up your structured settlement to help your beneficiary is important in order to make sure that your loved one(s) will be taken care of and that none of your settlement rewards will go to waste when you are no longer alive on this earth. 

The fate of your structured settlement to help your beneficiary all depends on how your settlement was designed in the first place.specifically there are multiple ways in which to set up a structured settlement to help your beneficiary including, but not limited to:

  • Pay only yourself.
  • Fixed payment.
  • Joint and survivor benefit.
  • Commutation rider.

With many different options to choose from available to help protect your beneficiary, it’s important to choose carefully and wisely when it comes to your structured settlement.

Pay Only Yourself

If your settlement is set up in such a way that it pays only while you are still living, then there will definitely not be anything left for your beneficiary if you make an unexpected early exit from life. 

Typically, not surprisingly, this is the decision and structure of choice for many defendants when setting up a structured settlement during a personal injury lawsuit

The reason for t his is because it ends the defendant’s liability if the individual dies. Choosing this option is a gamble and risking that there is a guarantee that nothing will happen to you in the near future because if something were to happen the beneficiary would be out of luck.

Fixed Payment

Another option when setting up a structured settlement is to have the payment be fixed over a certain period of time and set up so that there are a distinct number of payments. 

This period is typically called the “guaranteed period” since even if the individual dies, the payment continues until the specified payment period comes to an end.

Joint And Survivor Benefit

The third option is to structure the settlement so that payments go to the main settlement client, but in the event that the individual dies, the remaining payments go to a specified “survivor.”

This would typically be awarded to an immediate family member such as a spouse or a child. This also ensures that the structured settlement will be paid in full, even if the client does not live that long after the structured settlement was agreed upon.

Commutation Rider

The last option for setting up a structured settlement to aide your beneficiary is to include a commutation rider. This would provide for a designated beneficiary to receive a discounted lump sum in lieu of the remaining payments should the original settlement client die. 

Typically, the commutation rider only allows for the beneficiary to receive 90% of the remaining settlement upon the original individual’s death. That said, this amount is still likely greater than the amount a beneficiary would receive should they sell the settlement to a structured settlement buyer.

Conclusion

Now that you have reviewed the main options when setting up a structured settlement for a beneficiary, it is important that you sit down with your lawyer or legal advisor and discuss your anticipated needs before you even agree to the structured settlement. 

That said, if you should die, remaining payments made to your beneficiary are generally tax-free. It’s something to really think about since it’s difficult to disciple yourself from spending all of the lump sum if you sell, as any interest you earn on the investment of the funds is taxable, just like your structured settlement.

All in all, the odds are you will live a nice long life, but it’s important to really take a look at your settlement agreement to ensure that your beneficiary will be taken care of when you are no longer around.

The Main Benefits To Selecting A Structured Settlement

 

In summary, the main benefits to selecting a structured settlement are :

– Tax-Free Payment.

– Custom Payment Streams.

– Payments For Life.

– Payments For Beneficiary.

Structured settlement annuities are offered exclusively through structured settlements specialty brokers who have the ability to structure exactly the right settlement for the situation.

Hopefully one will never have to deal with a situation where one is injured but as life is unpredictable should an unfortunate situation arise, a structured settlement is definitely the best way to settle.