Structured Settlements

A structured settlement is commonly used to facilitate payments made in the event of divorce, accidents, and other legally agreed upon reimbursements. They are also used to distribute lotto winnings and sometimes called periodic payments. These structured cash payments have increased in popularity since being refined by U.S. Congress legislation in 1982. This provision made large monetary settlements more agreeable to both defendants and prosecutors while assuring victims certain protections. Structured settlements are typically negotiated through pre-trial proceedings or court order.

Structured Settlement Usages

While not appropriate for settling smaller accidents and payment amounts, structured settlements are designed for use when future medical costs will be incurred on a continuous and long term basis. This makes them fitting for cases involving worker's compensation, disability, wrongful death, and guardianship cases.

Benefits of Structured Settlements

Structured payments provide many benefits to the recipient that lump sum payments do not. When annuity structures are guided by professionals they can guarantee long term income with regular or varying payments to meet the circumstances and needs of the situation. Structured settlements are considered more secure than lump sum payments. By receiving a steady stream of cash, it is harder to misuse newly acquired wealth with one poor decision. It also makes individuals less attractive targets to con-artists, and if a loss is suffered, future payments help to insure financial recovery.

The point of the structured settlement is to protect the recipient from abuse. Since having the ability to use the settlement as collateral would nullify that intent, payments can not be used as collateral for a loan. The payments can, however, be used to show income when purchasing a house. Ultimately, structured settlements protect recipients from misspending income needed for future medical relief on large purchases.

Structured settlement payments are also exempt from both Federal and State taxes. Lump sum payments are subjected to being taxed at both levels. Those that receive lump sum payments have the additional worries of investment strategies and managing their money. Additionally, income derived through investments made with lump sum payment amounts are also subjected to being taxed.

Structured settlements are less expensive than lump sum payments for the parties involved, and the save the legal system from expensive court trials. They minimize risk to both sides, allow defendants to save in attorney and court fees, and provide injured parties with financial advantages for settling disputes out of court. The courts encourage structured settlements as a way to minimize unnecessary and costly legal proceedings.

Disadvantages to Structured Settlements

Laws regarding structured settlements might mandate or allow defendants to request payments to take place over a long period of time, rather than in one lump sum. Courts can also instruct this to occur, and in some instances, this might cause difficulties for seriously injured individuals. Individuals requiring large sums of cash up to face medical expenses, transportation changes, and housing issues in the immediate aftermath of an injury might find a lump sum payment to be of greater benefit. Additionally, insurance companies may stop structured settlement payments upon a recipient's death, with no additional funds going to dependent spouses or children.

By Doug Vanisky           

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