Structured settlements are periodic payments made to a plaintiff who wins or resolves a personal injury claim. Instead of receiving a lump sum of money for damages, the injured party may receive a series of payments made over time. What is a structured settlement annuity? A structured settlement is defined as a derivative and negotiated agreement of a person or company that wins a civil case. A settlement generally includes a lump sum of cash upfront (cash advance), once, to cover immediate expenses, followed by guaranteed, tax-free, periodic payments customized to meet the needs of the settlement winner.
Courts use structured settlements in many different types of cases to replace or supplement income that was lost through someone else's fault. Because they are carried out by a third party, it also means that someone does not need to systematically associate with the person or entity that hurt them. The defendant or insurer then pays the settlement funds to a third-party assignment company, which assumes responsibility and purchases an annuity from a structured settlement insurance company. If the settlement is structured to pay for a fixed guaranteed period, the annuity can normally be inherited for the rest of the guaranteed installments.
When the defendant and plaintiff agree to resolve a lawsuit with a structured agreement, the parties negotiate a cash amount payable by the defendant in exchange for the plaintiff to withdraw the lawsuit. The process of issuing a structured settlement is complicated and results in a simpler and easier solution for someone who wins a case. Structured settlements can be sold and there is no established formula or standard for how to sell payments. Additional investment options are available to claimants who are not interested in a structured settlement annuity.
Structured agreements were first used in Canada as part of the resolution of claims for birth defects arising from pregnant mothers who ingested thalidomide. Some municipalities even have stricter regulations and are generally in areas where there is a larger population at risk with structured settlements. Although many beneficiaries of a structured agreement find that the agreement is tailored to their needs, some may experience changes in financial circumstances and cannot obtain funds through conventional financing or other sources. It's important to weigh the pros and cons of agreeing to a structured agreement in relation to your unique circumstances.
At the same time, companies that purchase structured settlements are known to take advantage of beneficiaries' circumstances to obtain settlements for a relatively small price. In recognition of the value of providing a stable income stream for injury victims, Congress has made structured settlement profits tax-free. However, a structured settlement buyer should be able to help you along the way with whatever documentation you need and how to file it correctly.