Structured Settlement

Settlements suck. Well, not entirely. If one is settling and the financial payout is nice, then settlements aren’t so bad. But a settlement 9 times out of 10 results from the claimant having been injured in some manner, and nobody wishes that on anyone. A structured settlement is a type of settlement, one that is negotiated and results in an arrangement where a claimant agrees to receive all or a portion of payments on an agreed schedule. First used in Canada, structured settlements are now routine around the globe and in the U.S. especially they are becoming quite commonplace.

There are pros and cons to everything, right? Structured settlements are no different, so let’s jump into the pros first. To begin, a well-drawn out structured settlement can provide the plaintiff with incredible tax benefits because the settlements are “tax-free” per the IRS. However, it is prudent to read the fine print as exceptions do occur which could render individual portions of certain settlements taxable. A good example is if interest income is accrued on the settlement or if punitive damages are received. These are typically taxable.

Another pro is with structured settlements is plaintiffs will receive the certainty of payments over a period. This is obviously a huge plus, but experts suggest that if a minor is involved a lump-sum payment might be the better bet because this could allow for long-term investing for things like a first home or a college education. Also, if you’ve suffered a debilitating injury riddled with medical expenses, getting upfront money to take care of those costs could also bring a greater return. `

Of interest to quite a few folks, parties can tailor and adjust annuities to cover the specific needs of a plaintiff as well as future demands or contingencies. Moreover, in most states throughout the U.S. annuities are protected by insurance laws (vary by state) which will guarantee for the most part the obligations and coverage of an insurer. An insurer cannot declare “bankruptcy” and many states have a safety net in place for those insurance companies that for one reason or another become insolvent.

The pros to structured settlements are considerable, but there are two sides to every coin. A common criticism is certain parts of the settlement (structured annuity or a lump sum) can be taxed. This can include attorney fees, punitive damages and the like. Another nasty side-effect is something that is hard to control against – the economy. Adverse economic conditions resulting in excess inflation or a prolonged recession can result in annuity payments that are too small to cover the expenses that were supposed to be covered. And lastly, as of late, some insurance companies have been reluctant to communicate how much they will agree to buy out an annuity. A benefit of a structured settlement (for the defendant) is it is less expensive than making a lump-sum settlement offer. If folks knew what they paid on the buy out their competitive advantage would be compromised with other companies and future cases.

There are cons, no doubt, but the pros outweigh them by a mile. A structured settlement, when established correctly, is a heck of a tool if you find yourself in a nasty bind.