What is a structured settlement and how does it work?

A structured settlement is a flow of payments issued to a claimant following litigation or court case. The agreement is intended to pay for damages or injuries, providing financial security over time rather than a lump sum of cash. With a structured settlement, you have much less money in the bank and, therefore, a much lower tax liability. And if the settlement just isn't that big, you won't get a significant advantage from a structured settlement.

By 1985, the National Structured Settlement Trade Association was formed to preserve and promote structured settlements for injury plaintiffs through education The settlement is then distributed in a series of periodic payments over an agreed period of time rather than a one-time payment in most of the cases. In recognition of the value of providing a stable income stream for injury victims, Congress has made structured settlement profits tax-free.

a structured settlement

is when part or all of the settlement amount is paid to the plaintiff over a period of years. Structured settlements are tax-efficient and can also have wasteful and asset protection advantages.

Congress has provided the opportunity for injury victims to receive guaranteed periodic payments as part of their personal injury settlements. American General Life Company insurers are market leaders in drafting structured settlement annuities and have been in business for more than a quarter of a century. Annuity is an irrevocable flow of regular payments from an insurance company structured in a manner dictated by the court system. If the state uses the equitable distribution method and the agreement was obtained before marriage, the agreement is likely to stay with the owner of the agreement.

Finally, there is an additional commutation clause in some agreements that allow the inherited annuity to be paid in a single payment, so check that as well. A structured settlement is a negotiated financial or insurance agreement through which a claimant agrees to resolve a personal injury claim by receiving part or all of a settlement in the form of periodic payments in an agreed program, rather than as a lump sum. A structured agreement can be used in conjunction with settlement planning tools that help preserve the claimant's Medicare benefits. When a plaintiff receives a lump sum settlement, they may spend it too quickly, depriving them of the long-term financial security that future payments could provide.

The rules also allow the transferee to fund its periodic payment obligation under structured settlement through U.