What you need to know about structured settlements.
Structured Settlements - What are they?Many people have been compensated for injuries sustained in an accident Until 1982, such compensation was usually accomplished by payment in a lump sum. A change in Federal law that year created what are now known as structured settlements, an alternative to lump-sum payments where the injured party receives monthly or annual payments over a period of time.
A Structured Settlement can offers several advantages over a one-time, lump sum payout. With a structured settlement, the security of long-term income is guaranteed. If the victim is confined to a wheel chair or needs constant bed rest and nursing attention, a structured settlement can make certain that sufficient funds will be in hand to pay for the care. This allows the patient and/or their family to concentrate on health care without having to be overly concerned with the machinations of investing a lump-sum payment.
A Structured Settlement can offers several advantages over a one-time, lump sum payout. With a structured settlement, the security of long-term income is guaranteed. If the victim is confined to a wheel chair or needs constant bed rest and nursing attention, a structured settlement can make certain that sufficient funds will be in hand to pay for the care. This allows the patient and/or their family to concentrate on health care without having to be overly concerned with the machinations of investing a lump-sum payment.
Structured Settlements allow income to be spread over time, which is safer than a lump sum payment. Studies have shown that some 30% of those who receive lump-sum payments as compensation for accident or injury spend the money within two months, and some 90% have spent the money within five years.
A lump-sum payout must be invested and administered. Unless the victim or their family has experience investing large amounts of money, they will have to hire a financial advisor to handle the sum. Any returns on the invested money are taxable, and there is always the risk of handing the investment to the wrong person and having the money simply disappear due to theft or mismanagement.
A structured settlement can prevent this. The income from a structured settlement is tax-free, both at the Federal and state levels. Because the money is handed out in smaller increments, there is less need for a financial advisor. And with no financial advisor, there is less of a chance of theft or loss of the funds, which would leave the victim without financial aid or income.
Structured settlements are often ideal under the following circumstances:
- Guardianship cases where the victim dies and leaves minor children. A structured settlement can insure that funds are available for food, housing and education for the surviving family members.
- Workers compensation cases where the injured party is unable to work for a protracted length of time. A structure will allow steady income to insure that the victim and their family will continue to have steady income.
- Disabilities of a temporary or permanent nature that require extensive health care or recovery time.
The party that pays in an accident or injury case can benefit from payments over time, as they can set up an annuity to pay the funds over time. The funds are invested with the payments coming out of the proceeds. It’s “hands off” for the paying party, and they typically pay out a smaller amount of money in present dollars than if they paid in a lump sum.
There are many things to consider if you are in a position to receive a large amount of compensation for injury or accident. One of the options may involve payments over time. Before you act, you should learn as much as you can about structures in order to determine if such an agreement is right for you. As always, should you find yourself in such a situation, you should consult with a financial advisor and/or a competent attorney. The last thing you want to do is deal with a crisis without adequate help.
