If you have been involved in a law suit or may need to file one for any reason at all, you may be wondering about a structured settlement and how it woks. A structured settlement is essentially a structured payment system whereby the claimant receives regularly scheduled payments as opposed to one lump sum of money.
One of the benefits of a structured settlement versus a lump sum payout is the guarantee of funds lasting over a lifetime for the plaintiff. Studies have shown that lump sum payouts are typically exhausted after just a five year time period leaving the claimant with no future funds to support themselves. In cases of personal injury and disability, this can be detrimental to the life style of the individual. Structured settlements offer guaranteed funds and income stability as well as being an excellent investment vehicle.
A structured settlement can also be viewed as an investment vehicle as the payments receive several different tax benefits. They are sometimes referred to as structured settlement annuities. Claimants opting for a structured settlement receive their installments free of any income taxation whatsoever. In the event that the plaintiff passes away prior to receiving the full amount of their settlement, any remaining funds would be added to the estate of their beneficiaries. In this circumstance, the settlement funds would be subject to estate or inheritance taxes.
When structuring your settlement there are many different options available to you. You can choose to set these payments up to accrue interest over time so as to increase the overall value of your funds while they are being paid out to you. One of the payout options you can set up for you funds include a ‘life annuity’ option. With a life annuity you can receive the sum of money paid out steadily for the duration of your lifetime on a weekly, bi-weekly, monthly or even yearly basis. Another payment option is called the deferred lump sum option in which the payments can be made at pre-determined time periods for specific purposes such as health benefits, education costs and retirement planning.
A joint and survivor annuity will allow you to receive payments for yourself as well as a surviving beneficiary. This is set up as two separate annuities under one account. The survivor will continue to receive the payments at a percentage of the original benefit. Another structured payment option is a period certain annuity payout where the claimant would receive the payouts for a specific period of time.
It is important to consult with your lawyer about which payout option is best suited for your specific needs. When considering whether to place your funds in a higher yield investment account, it is important to keep in mind that any other investment account other than a structured settlement annuity will be subject to income tax penalties upon withdrawal. In general, it will be more beneficial to keep your funds in the annuity plan of your choice instead of attempting to diversify them and possibly lose revenue due to tax infringements.
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