Structured settlement is a method of receiving compensation for physical injury and wrongful death lawsuits. Under structured settlement, compensation is paid in installments rather than in a lump sum. If the plaintiff opts for a structured settlement, the defendant’s insurance company is responsible for funding an annuity policy that will pay compensation to the plaintiff throughout the duration of the annuity. The plaintiff determines the annuity period. Structured settlement is generally an option in physical injury and wrongful death lawsuits that involve large damage awards.
- The most obvious benefit of choosing a structured settlement rather than a lump sum settlement is that the annuity payments are not subject to state and federal tax. Therefore, more of the money can be used towards the expenses of the injured party and his/her family. On the other hand, lump sum settlements may be taxable if it is for punitive damages.
- A structured settlement also protects the plaintiff from mismanaging his/her money. With a lump sum payment, the plaintiff is in danger of inadequately allocating the money. With more money up front, the plaintiff may spend the money on things that are not essential to the cost of supporting him/herself and his/her family. With a structured settlement, the plaintiff can structure the duration of the annuity, so that he/she will not be in danger of ever running out of funds.
- A structured settlement can expedite the settlement process in complex cases. Normally, settlement process can take unreasonably long time. The sooner the case is settled, the sooner the plaintiff will be able to move on with his/her life. Drafting a structured settlement plan during pre-trial negotiation decreases the chance that the case will go to trial because the structured settlement clearly lays out the plaintiff’s losses and future needs.
- A structured settlement is generally guaranteed, meaning that if the insurer of the annuity goes bankrupt, the plaintiff will still be paid.
- If the plaintiff is a minor, the damage award maybe paid into a trust. With a trust, the money is not guaranteed. If the market drops and bad investments are made by the trust, then the amount of money held by the trust may decrease. Also, money put into a trust is subject to both federal and state tax, which is taxed at the rate of ordinary income. In addition, trusts charge an annual fee to manage the plaintiff’s money. Therefore, the overall money that is left to the plaintiff may be a lot less if money is put into a trust. With a structured settlement, the plaintiff will get to keep more of his/her money because it is not subject to federal or state tax, or an annual management fee.
- With a structured settlement, the plaintiff will not have to waste time constantly reporting back to the court in regards to the income and expenditures. On the other hand, if a trust is used to hold the plaintiff’s money, he/she will be required to report to court in regards to income and expenditures for approval.
- With a structured settlement, the plaintiff has the ultimate control in planning out his/her life. The plaintiff can lay out what his/her needs are and plan the duration of the annuity accordingly. If needed, structured settlement can be combined with part lump sum settlement so that the plaintiff can pay off any immediate expenses, such as medical bills.
If you or someone you know is in need of a personal injury lawyer, contactHarvey L. Walner and Associates in Chicago, Illinois.