Structured Settlement FAQs

The following information has been compiled to help those who may be considering a structured settlement plan or individuals seeking information on the topic of structured settlements.

What is a Structured Settlement?

How are Structured Settlements Taxed?

Structured Settlements: How long will I receive payments?

How much money is enough for a structured settlement?

What Is A Structured Order?

When Can I Get A Structured Settlement?

Who Should Consider a Structured Settlement?

Who should I talk to about structured settlements?

What are the benefits of a structured settlement?

Q: What is a Structured Settlement?

A: A structured settlement is a periodic payment plan that is agreed upon between a plaintiff and defendant. It is used in many cases where the plaintiff is awarded a large sum of money. Instead of receiving the compensation in a lump sum payment, the payments are spread out over a period of time that is decided upon beforehand.

In cases involving personal injury, a structured settlement is especially helpful. If the plaintiff is temporarily or permanently unable to work, a structured settlement provides them with a sense of financial security. The claimant will have a steady source of income which makes financial planning much easier. Another good reason for choosing a structured settlement is the tax benefits they have to offer.

When payment is received through a structured settlement fixed annuity, the claimant's payments are not subject to federal income tax. The earnings accrued from the payments are also exempt from federal income taxes. In most instances, the claimant can earn more money this way than through taxable investments

Q: How are Structured Settlements Taxed?

A: If you have been injured mentally, physically or otherwise, you generally do not owe any federal or state taxes on any money you receive from a structured settlement. This is the primary reason why people often prefer a structured settlement with payments made over time as opposed to lump sum payments.

While you also pay no taxes on the lump sum payment, you must pay taxes on any money you make from interest made on the lump sum or on profits from investments of the lumps sum. If your money is in a structured settlement, any interest that accrues over the course of your payout schedule is tax free.

Q: Structured Settlements: How long will I receive payments?

A: When agreeing to a structured settlement the funds are generally distributed in two ways. Recipients will typically receive an initial lump sum with the duration available through an annuity plan. The remainder of these monthly or annual payments is generally structured to meet ongoing medical and financial needs commensurate to your personal injury following successful litigation.

There are certain components built into a structured settlement that are best reviewed with a qualified attorney. These features are important to address because they have a bearing on such things as payment methods as well as whether or not the settlement will allow heirs to receive the remainder of compensation in the event of death.

Q: How much money is enough for a structured settlement?

A: A competent attorney will be able to assist you in researching the details of your financial needs following the successful litigation of a personal injury lawsuit. Since most structured settlements rely on a long term annuity payout it is important to have a realistic picture of your financial requirements. Those with the most severe injuries are most likely to be awarded significant structured settlements, while older plaintiffs are likely to see a lesser award.

This disparity is primarily due to a general view of life expectancy allowing younger plaintiffs to receive a larger overall settlement. A financial advisor can also explain risks associated with interest rates tied to your structured settlement annuity. Fluctuating interest rates can affect present and future settlement payments. The answer to, "How much is enough for a structured settlement?" is best answered by taking a realistic look at present and future medical needs and lost wages.

Q: What Is A Structured Order?

A: A structured order is a judgment of settlement that is made by the court. With a structured order, the agreement of the parties, both Plaintiff and Defendant, are not necessary. The structured order is often decided upon by the court when the parties can not come to agree upon a settlement or structured settlement themselves.

This structured order begins by an individual suing for compensation or damage received such as personal injury. When the injured party and the Defendant can not agree to the terms of a settlement, the court then may decide on a structured order. This structured order is very much like the structured settlement, in that the compensation paid to the party will be paid by periodic payments that are tax-free.

Q: When Can I Get A Structured Settlement?

A: When opting for a structured settlement, the important thing to remember is that you may only take do this before the personal injury claim has been settled. What this means is that if you settle your personal injury claim, you can not change your mind and opt for a structured settlement.

There may be other conditions you and your case will have to meet, as well, such as the claim itself is from a personal injury and not a death and that your settlement is in writing. Each country or state may have other conditions that must be met before you can get a structured settlement.

Q: Who Should Consider a Structured Settlement?

A: A structured settlement is beneficial in many cases including those involving personal injury, such as medical malpractice or auto accident injuries, workers compensation cases, and in the instance of attorney fees. For personal injury and workers compensation cases, a structured settlement is advantageous for many reasons. First it provides a stable source of income for those unable to work.

Unlike plaintiffs who choose a lump sum payment, a structured settlement payment plan does not require the recipient to be especially skilled in financial planning or investing. Secondly, it may be necessary in cases involving wrongful death. If the surviving spouse is not employed, a structured settlement will provide them with a steady flow of income similar to receiving a paycheck.

Lastly by receiving periodic payments, plaintiffs are guaranteed income in the future that may be needed for major expenses such as purchasing a home or paying for a college education. In regards to attorney fees, a plaintiff has the option of using a structured settlement plan for those fees only. This is a common choice for cases that involve wrongful death or personal injury claims. A structured settlement for attorney fees can also benefit the designated attorney by allowing them to reduce their tax payments since the fees received will be spread out over a long period of time.

Q: Who should I talk to about structured settlements?

A: When personal injury litigation is successfully completed you may find that the actual structured settlement is best reviewed by both an attorney along with a competent financial advisor. The attorney will be able to assess all legal issues and will seek to protect legal rights while a financial advisor will be able to provide perspective on what may be in your best financial interest.

A financial advisor will be able to explain the finer details of a chosen structured settlement plan. It is important to address all issues related to your structured settlement prior to finalizing the compensation agreement. Ultimately you have the final say on how your structured settlement will look, but by taking advantage of the expertise of those who have managed other similar cases you may discover ways to provide a more comprehensive approach to managing your settlement.

Q: What are the benefits of a structured settlement?

A: The biggest advantage of a structured settlement is that it removes the risk of potentially mismanaging one large lump sum of money. Another benefit is that it provides the claimant with a regular income stream, making budgeting much more easier, similar to pocket money or a shopping allowance. This can be especially helpful for those who have had to take time off work to recover of those who are nolonger able to work due to their injury. Furthermore all structured settlement payments are exempt from federal income tax.