Understanding Structured Settlements: A Guide for Personal Injury Claimants
A structured settlement is an agreement reached after winning a civil suit, typically involving personal injury or wrongful death cases.
It provides the claimant with financial stability through periodic payments, often preceded by a lump-sum cash advance to address immediate needs. These payments are tailored to the claimant's requirements, ensuring a steady income stream while offering unique tax advantages.
The Periodic Payment Settlement Act of 1982
This federal legislation safeguards recipients of personal injury or wrongful death settlements by ensuring they receive tax-free payments over time. Passed in 1982, the law aims to prevent financial instability by offering structured payments, which can extend throughout a recipient’s lifetime.
What Is a Structured Settlement Annuity?
When a settlement is awarded, the defendant may purchase an annuity from an insurance company to handle periodic payments. This arrangement benefits both parties:
- Defendants transfer payment responsibilities to experienced financial professionals.
- Plaintiffs gain predictable, long-term financial stability.
How Do Structured Settlements Work?
Settlements can be distributed in two ways:
- Lump-Sum Payments: Immediate access to funds, but with risks like overspending and taxable investment earnings.
- Structured Settlements: Provide steady income through tax-free annuities, ensuring financial security without penalties.
Key Advantages of Structured Settlements:
- Tax-free growth on annuity earnings.
- No risk of exhausting funds prematurely.
- Flexibility in payment schedules to suit individual needs.
Common Types of Structured Settlement Cases
Structured settlements are often used in:
- Personal injury claims.
- Car accident injury cases.
- Workers' compensation claims.
- Medical malpractice lawsuits.
- Wrongful death lawsuits.
- Maritime and railroad accident cases.
Structured Settlements for Minors
When a minor receives a settlement, their payments are typically structured to cover their needs until adulthood. Parents or guardians must comply with court orders on how the settlement funds are spent.
Lump Sum vs. Structured Settlement: What’s Right for You?
Before deciding, consider the size of your settlement, your financial knowledge, and your tax situation. Structured settlements can provide disciplined financial management and avoid the risk of mismanaging a lump sum. However, a lump sum may be preferable for smaller settlements or immediate financial needs.
Questions to Ask Yourself:
- Are you comfortable managing a large sum of money?
- Do you understand the tax implications of each option?
- What are your immediate and long-term financial needs?
Customizing Your Structured Settlement
Structured settlements can be tailored to your unique situation. With your attorney’s guidance, you can negotiate:
- Payment frequency (monthly, annually, etc.).
- Duration of payments.
- Lump-sum amounts at specific intervals.
- Delayed payments for future milestones, like retirement.
Benefits of Structured Settlements
- Tax-Free Income: Compensation for physical injuries or wrongful death is exempt from federal and state taxes under Section 104(a) of the Internal Revenue Code.
- Predictable Income: Guaranteed payments provide financial security.
- No Market Risk: Structured annuities are not subject to market volatility.
- Customizable Options: Payment terms are adjustable based on individual needs.
Need Immediate Financial Help?
If you’re awaiting a settlement and need funds now, PrimeCare Network offers pre-settlement cash advances to cover urgent expenses. Get financial relief today while you wait for your case to settle.📞 Call us at 888-474-8473 💻 Apply now: PrimeCare Network Application This content is for informational purposes only and does not constitute legal, tax, or financial advice. Consult your attorney or financial advisor for personalized guidance based on your specific circumstances.
