Disadvantages of Structured Settlements

Although structured settlements can have many advantages over lump sum settlements, they are not for everybody. A problem that some people have with structured settlements is that they may agree with the original settlement details but then change their mind later or have changed medical or living circumstances that necessitate a different distribution of money.

Unfortunately, once a structured settlement is decided upon, it cannot be changed. However, most people can avoid this kind of problem if they carefully evaluate their present and future needs with the help of legal and medical experts. By anticipating their evolving needs and significant future life events, claimants can ensure that enough money is always there when they need it. However, a structured settlement may not be suitable in some cases in which future medical needs cannot be clearly anticipated, such as the case of a disorder or injury with an uncertain course.

Another issue for some people is that they may end up with a larger net settlement if they invest the money themselves and allow funds to accrue over time. While this is certainly the case for financial experts who end up having to choose between a lump sum or structured settlement, most people will probably not make substantial investment income with a lump sum settlement for two reasons: first, many people overestimate their investment abilities, and second, it is difficult to avoid squandering money when you have a large lump sum available.

A fact that many claimants don't realize that can help them determine whether to take a structured settlement or to invest a lump sum themselves is that the money you will receive in your structured settlement is actually already being invested by financial experts. Your net settlement will therefore increase based on the investment skills and experience of a large body of experts. Your only loss comes from commissions and fees for the brokerage company and financial experts. For this reason, most people will not be able to do better by investing the money themselves, although each case is different.

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Advantages of Structured Settlements

There are many advantages to selecting a structured settlement over a lump sum award. Most importantly, a structured settlement is guaranteed to provide for the future needs of the injured party. In fact, most of the time, a structured settlement will provide for the personal and medical needs of an injured person for their entire lifetime. Lump sum awards, on the other hand, often end up being squandered through poor investment strategies, overuse, and the ups and downs of the stock and investment market. The American Association of People with Disabilities endorses structured settlements, arguing that they can be the best and safest means of making sure an injured person who wins a tort case is provided for throughout their lifetime.

A second advantage of the structured settlement is the unique way it is handled by the tax code. Most of the time, annuity payments are untaxed, meaning that more money makes its way into your pocket. Lump sum payments, on the other hand, can incur a substantial tax burden.

Structured settlements are also highly flexible. In fact, no two structured settlements are the same, because each one is arranged to take into account the specific present and future needs of the injured party. For example, some people will want to receive a small annual sum, while others may want to receive several larger sums distributed every few years or arranged around significant life events. Structured settlements can also be arranged to provide more money for the claimant later in life or more money as the claimant's medical condition worsens. There are no limits to the different possibilities of the structured settlement, because it is a private arrangement between claimant and defendant.

Finally, structured settlements have a number of unique advantages that end up increasing the net amount of award money for many people. For example, your money cannot be reduced by divorce or the receipt of social security. In addition, you may end up netting a larger award because you have to pay out less for lawyer and court fees incurred during a lengthy court battle.

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How to Sell Your Structured Settlement

As you may know, it is possible to receive a lump sum from your structured settlement so that cash can be available now, for example, to purchase medical equipment or a handicapped vehicle. But how should you go about selling your structured settlement, and how do you get the best deal available?

First, it is important to get your own lawyer to help you through the structured settlement sale process. They will be able to examine potential contracts and make sure that you get the best deal available. In addition, when looking at companies who buy structured settlements, only work with companies with an established reputation.

Make sure to compare offers from several companies before deciding to sell your structured settlement. In general, companies will end up profiting in some way from your settlement, which means that you will likely not profit. But in many situations, what is most important is getting your needs met, which means that a small loss is acceptable. You can end up making up for the loss at least partially with sound investment strategies later on. Do make sure, however, to examine each offer in detail to make sure your loss is minimal.

You should also be aware that if you live in some areas, there will be some restrictions on settlement sale. These restrictions vary from state to state. In general, you will need to get court approval for the sale, and other aspects of the sale will be regulated as well. There also needs to be some cooperation with the annuity issuer (the company that issued your original structured settlement) who may have specific policies governing the sale of settlements.

Finally, make sure to consult with an accountant about what kind of tax liability will be incurred upon the sale of your structured settlement. In many cases, even though structured settlement payments are not taxed, the sale of your settlement will be taxed as any other receipt of a lump sum of money would be.

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What Is a Structured Settlement?

 

 

Sometimes when a plaintiff settles a case for a large sum of money, the defendant, the plaintiff's attorney, or a financial planner consulted in association with the settlement, will propose paying the settlement in installments over time rather than in a single lump sum. When a settlement is paid in this manner it is called a "structured settlement". Often the structured settlement will be created through the purchase of one or more annuities, which guarantee the future payments.

 

 

A structured settlement can provide for payment in pretty much any schedule the parties choose. For example, the settlement may be paid in annual installments over a number of years, or it may be paid in periodic lump sums every few years.

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