A structured settlement is a negotiated customized stream of periodic payments, paid as damages in exchange for a release of liability to resolve a lawsuit or dispute, that is customized to the needs of personal injury victims, wrongful death survivors and their families.
Often funded with an annuity, but unlike other income annuities, a structured settlement annuity can have multiple payment streams to address multiple needs in a single contract.
A structured settlement addresses the thing that most people most worry about. Money.
Take your pick from examples of common money worries:
Money worries occur all along the age and wealth spectrum.
The inevitable question "lump sum or structured settlement?" is one faced by many plaintiffs. It may come up at mediation or when the case settles. However, it is not an either/or answer because many times both a structured settlement and a lump sum is the answer. A lump sum can be difficult to manage if you need income. There are many things that come into play such as:
Consider the image on this page, which illustrates the dilemma faced by someone with a lump sum of cash.
Emotions come into play, magnified by the reality that those funds were derived from a physical injury or sickness or the wrongful death of a loved one,
A structured settlement is an important core financial planning tool available to parties in personal injury, wrongful death and workers compensation litigation, that provides essential income stability with tax advantages. Protect your legal settlement recovery with a structured settlement and create or augment a stable financial core. A structured settlement is a river of income flowing with money.
When the settlement of claims represent payment of damages for personal physical injury or physical sickness, wrongful death, workers compensation and the settlement is structured using a qualified funding asset (a single premium structured settlement annuity , or a trust fund that invests only in obligations of the United States government ), the periodic payments are income tax-free.
A structured settlement, if ethically and effectively used, is an innovative negotiation and settlement planning tool that provides significant benefits to all parties in litigation and may help parties to facilitate settlement.
By agreeing to a structured settlement as part of their claim or lawsuit recovery, claimants or plaintiffs can receive future periodic payments income tax-free , if their periodic payments qualify under §104(a)(1), as amounts received under workmen’s compensation acts as compensation for personal injuries or sickness; or the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness under §104(a)(2) of the Internal Revenue Code.
A structured settlement definition appears in the Internal Revenue Code, at §5891(C) (1), as "an arrangement"—
(A) which is established by (1) suit or agreement for periodic payment of damages excludable from gross income of the recipient under §104(a)(2), or (ii) agreement for periodic payment of damages under any workers’ compensation law excludable from gross income of the recipient under §104(a)(1), and
(B) under which the periodic payments are (i) of the character described in subparagraphs (A) and (B) of §130(c)(2), and (ii) payable by a person who is a party to the suit or agreement or the workers’ compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with §130...
Internal Revenue Code §139F (wrongful incarceration/wrongful conviction)
Structured settlements are available in all 50 states. But you cannot buy a structured settlement annuity for yourself. To be eligible to receive a structured settlement, you must be a plaintiff in a lawsuit. If not in suit, you must be the claimant. As part of a settlement, a contingency fee plaintiff's or claimant's attorney may also structure or defer their legal fees .
Constructive or actual receipt of settlement proceeds must not have occurred. Don't sign a release with the words "receipt of which is hereby acknowledged" if a structured settlement is desired for you, your spouse, children, or your ward
Please read our section How Structured Settlements Work. Structured Settlement annuities are only placed by or in conjunction with brokers and consultants who hold active life insurance licenses (annuities, which are issued by life insurance companies, are grouped into this category for regulatory purposes) and are authorized by the insurers that issue the structured settlement annuities. Note that even if someone markets themselves to you as a settlement planner, they are acting in the capacity as agent or broker when placing, or co-broking a structured settlement. In New York State, individuals or companies holding life broker licenses may also act as structured settlement consultants, but may not be appointed by the annuity issuer. Such brokers and consultants are generally paid a one-time commission or share of the commission, by the annuity issuer(s), or co-broker, for placing the structured settlement annuity or other funding asset. Generally, state insurance law prohibits rebating of commissions.
4structures.com® LLC hopes that you find this website helpful in learning what is a structured settlement and how a structured settlement may be used effectively on your client’s case as part of an overall settlement plan or financial transition plan. Simply call 888-325-8640 or email if you like and we will be ready to answer your questions about structured settlements, market based structured settlements (a/k/a investment backed structured settlements), Treasury Funded Structured Settlements, settlement planning or other Sudden Money and settlement management issues.
While the term "structured settlement" is formally and traditionally applied to settlement for payment of damages involving physical injury, physical sickness or workers compensation (where damages or claims are excluded from gross income to the extent set forth in the statute), the colloquial usage may include a similar approach involving taxable damages using a non-qualified assignment or periodic payment reinsurance . Click on the bolded words for more details.
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Last updated December 16, 2023
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