What is a Structured Settlement?

A structured settlement is a way for a person who is awarded a large sum of money to receive that money over a period of payments rather than in a lump sum.  If you’re awarded damages in a personal injury or medical malpractice case, for instance, the amount awarded can be large. While it can be required that it’s paid at one time, there are good reasons for agreeing to a structured settlement in which the settlement can be paid in installments.

Reasons for Agreeing to a Structured Settlement

• Tax benefits.  Structured settlements can often be set up in such a way that taxes are minimized or avoided altogether.
• Protection of future funds. A lump sum can be spent, while a structured settlement guarantees some remaining money.
• When a minor will benefit, as in college funding and future expenses.
• Long-term medical needs and expenses will always be met with structured settlement payments.
• You can usually set up the payment schedule however you like, from yearly payments to larger payments every 2 or 3 years. This depends on the agreement you come to with the defendant.

Disadvantages of a Structured Settlement

There can also be downfalls to arranging for a structured settlement that should be considered before deciding on the settlement.

• You can’t borrow against future settlement payments so it’s not ready capital as if it were a lump sum payment.
• The annuities used in long-term settlements can lose value. A wise investor may be able to invest a lump sum payment and make better returns.

For those who agree on a structured settlement and regret it, it might be tempting to sell the settlement to companies that claim to give you a lump sum of cash in exchange for the settlement. Many states have laws that restrict your ability to do this.  If your settlement was set up with tax benefits, the federal government may also restrict your ability to sell the settlement. The terms of the annuity may also forbid it from being transferred.  So you should consider all these factors before you opt for a structured settlement over a lump-sum payment. Once you agree to the settlement, it’s unlikely you’ll be able to change the terms.

• If you need legal assistance with a Personal Injury Claim, please consult with an Injury Attorney near you to discuss the details of your case. This website is for informational purposes only, and nothing stated here should be taken as legal advice.