Personal Injury Payout: Structured Or Lump Sum?

A personal injury payout can be delivered in one large lump sum or by structured payments over a period of time. The choice of which to choose depends on the severity of your injury and the amount of money. Below are the considerations to include when deciding which payout method to choose.

Structured Payout: Lower Taxes

Because structured payouts are delivered over an extended period of time, the recipient of payments is not considered to have received only the amount of each payment in a year. This means that an injured individual does not have to pay taxes on the full amount, only the amount actually received.

Structured Payout: Investment Opportunity

Structured payments are often invested into annuity or other types of investments that may permit them to earn interest or dividends and grow over time. This type of settlement is desirable for those individuals that are not good at managing personal finances or that want the amount of money to increase while not being used.

Structured Payout: Peace of Mind

Because a structured payout arrives over a period of time, an injured party can be assured that the money will be there when it is needed. This is particularly important for those individuals that will continue to experience repercussions from their injury in the future.

Lump Sum: Immediate Financial Relief

A one-time, lump sum payment provides an injured party with immediate financial relief, which is necessary in the case of extreme debt that has accumulated since the accident. Sometimes, the peace of mind a large check offers is more important than long-term growth and peace of mind.

Lump Sum: Tax Consequences

A recipient of a settlement may have to pay taxes on the sum of money awarded. If paid all at once, this could mean that a large amount would be deducted for taxes, significantly reducing the amount the recipient actually receives.

The Amount of the Settlement

For the most party, it is the amount of the settlement that will determine which type of payout to choose. Smaller awards of a hundred thousand dollars or less, are best delivered in a lump sum because they will not garner much return income when invested and will not cause as much tax liability. Larger payments are best delivered according to a structured payment schedule because they will be taxed more heavily and will gather more interest income.

Getting Legal Help

If you have been injured and offered a settlement to compensate you, consider hiring an attorney to assist you with the negotiations and release of funds. An attorney will be able to advise you about the best method of delivery for the amount and facts of your case.