A structured settlement is a financial arrangement where the injured party agrees to resolve their damage claim by receiving part or all of the settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. The payment schedule can be structured in many ways to meet the needs of the injured party, including payments for life, over a set number of years, or even delayed until the claimant reaches a certain age. This option is often preferred as it provides long-term financial security to the claimant, especially if they have sustained debilitating injuries that would affect their ability to work.
Structured settlements are typically used in personal injury cases where the claimant has suffered severe injuries that require long-term or lifetime medical care. These include incidents like severe car accidents, medical malpractice, or workplace injuries.
The structured settlement helps cover ongoing medical costs, living expenses, and any other financial needs that arise due to the injury. Moreover, structured settlements can also be used in cases involving minors to ensure financial stability once they come of age, or in wrongful death cases to provide ongoing income support for the decedent’s dependents. The goal is to establish a reliable income stream for the claimant to maintain their quality of life and facilitate needs arising from the injury.
Structured settlements offer various payment options to cater to the unique needs of the claimant. Here are some of the common structured settlement payment options:
It’s essential to choose the right option depending on your financial goals and life circumstances. Therefore, consulting with your injury attorney and a financial advisor is highly recommended.
Structured settlements offer several advantages in personal injury cases:
Remember, it’s essential to consult with a financial advisor and your attorney to understand the full implications of settling a personal injury claim with a structured settlement.
The tax benefits of using a structured settlement are significant and codified in the United States tax law. According to the Periodic Payment Settlement Act of 1982, the full amount of the structured settlement payments is tax-free to the recipient. This legislation made it clear that an injured party would not be liable for any taxes on the settlement, regardless of how the payments were structured.
Furthermore, Internal Revenue Code (IRC) Section 104(a)(2) clarifies that the entire amount of a personal physical injury settlement is exempt from taxation, whether it is received as a lump sum or as structured settlement payments. This tax exclusion applies to the interest earned on the settlement, which otherwise would be taxable if the money were invested.
Hence, these tax laws provide a significant financial advantage to structured settlements, helping injured parties keep the full sum of their compensation, and ensuring they have a reliable, tax-free income stream to support their long-term recovery and quality of life. Remember, it’s always crucial to consult with a tax advisor or attorney to understand the full tax implications of a structured settlement in your personal circumstances.
Despite the considerable benefits, structured settlements also have some potential disadvantages:
It’s crucial to weigh these disadvantages against the advantages when considering a structured settlement. Each personal injury case is unique, and the injured party should consult with their attorney and financial advisor to determine the best course of action.
Consider a scenario where a person, let’s call him John, has suffered a severe personal injury due to a workplace accident. After a court case, it is determined that John is to receive a total of $1.5 million in compensation. Instead of taking a lump-sum payment, John decides to opt for a structured settlement. His arrangement could look something like this:
This example illustrates how a structured settlement can provide a steady income stream over a long period and the flexibility to meet immediate financial needs. It also highlights the tax benefits that come with structured settlements, as John’s regular payments are not taxed. However, it’s critical to remember that everyone’s situation is unique and this is just one of many possible structured settlement examples. Always consult with a financial advisor or attorney to understand the full implications of settling a personal injury claim with a structured settlement.
Deciding whether a structured settlement is the right choice for you depends on numerous factors, primarily your financial needs, future plans, and ability to manage large sums of money. If you anticipate significant future expenses, such as ongoing medical costs or educational fees, a structured settlement can provide a reliable, continuous income stream to meet these needs.
Furthermore, if managing a lump sum is not your forte, the gradual payout of a structured settlement can protect you from poor financial decisions or impulse spending. However, if you prefer to have control over a large sum and are confident in your investment skills, a lump sum may be more suitable.
Remember, it’s essential to discuss these considerations with your attorney or a financial advisor to determine the most appropriate choice in your personal injury settlement. Contact us today for a FREE CONSULTATION, learn how we can assist you, and join our long list of clients with excellent results involving structured settlements.
Thompson Law receives an attorney fee and you pay no legal fees as our client unless we pay you. Thompson Law has 350 years of combined experience in legal representation and has won over $1.8 billion dollars in cash settlements for our clients. We master the art of managing client cases with empathy, compassion, respect and, of course, prodigious skill. Contact us today for a free, risk-free consultation to discuss your accident and your options.
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