Structured settlements are available to individuals who are settling personal injury claims. Sometimes when a plaintiff settles a case for huge amount of cash, the plaintiff’s attorney, the defendant, or a financial planner consulted in collaboration with the settlement, will suggest settling the settlement in installments over a specific period of time rather than in a lump sum. When a settlement is paid in installment, it is known as “structured settlement”. Occasionally, it will be established through buying of one or several annuities, which assures the future payments.
It also offer for payment in pretty much any schedule the parties select. For example, the payment of settlement can be in periodic lump sums after every few years of it may be annual installment over several years. In exchange for enjoying a guaranteed, tax-free investment, the tax authorities dictates that once the structure is set in place, it can’t be cashed in or changed.
One of the major advantages of it is tax avoidance. Having appropriate set-up, it may considerably minimize the plaintiff’s tax compulsions as a result of the settlement, and may in some circumstances be tax-free.
It protects a plaintiff from having settlement funds dissipated, when they are essential to pay for imminent needs or care. Occasionally, a structured settlement can assist protect a plaintiff from herself/himself; some individuals are not good with cash, or cannot resist relatives pressure who want to have a pie of the wealth, and even a large settlement can be promptly exhausted.
Minors may enjoy the benefit of structured settlement which offers for particular costs during their youth, an extra disbursement to pay for college fee or other educational expenses, and additional disbursements in adulthood. An injured individual who suffers long-term special needs enjoy a constant stream of income or periodic lump sums to buy modified vehicles or medical equipment.
In some circumstances, it is better for severely disabled plaintiff to establish a special needs trust, instead of entering into a structured settlement or lump sum. A plaintiff who is enjoying benefits of Medicaid or expecting to receive other public aid should consult a disabilities financial planner concerning their condition before selecting any particular settlement structure or option.
Anyone should put into consideration potential exploitation in relation to the settlement by focusing on the following factors:
Excessive commissions- It is essential to ensure that the commission charged when setting up the plan, do not eat up most of its principal.
Overstated value- You should compare the commissions and fees charged for similar settlement packages offered by various companies.
Multiple insurance companies- if the settlement is large, it is advisable to purchase annuities from several companies.