Structured settlement annuities provide for a safe and secure tax-free stream of income. Structured settlements are a pivotal part of the overall financial plan we develop for injury victims. Our structured settlement annuities are provided by the highest rated life insurance companies in the structured settlement marketplace. As independent advisers, we are not restricted to any particular life insurance company. We shop the marketplace to obtain the best combination of rated ages and investment returns. We offer unique pricing methods and reports to maximize our clients’ benefits and payouts. We also have a proprietary structured settlement optimization program to maximize annuity payouts.
For nearly 25 years, the federal government has recognized and encouraged the use of structured settlements in personal injury cases. Structured settlements have also attracted strong support from plaintiff attorneys, state attorneys general, legislators, judges, and disability advocates. Historically, damages paid as a result of an injury lawsuit came in the form of a single lump sum payment. This kind of payment, especially in catastrophic injury cases, often placed the injury victim (or family) in a difficult position. With the victim focused on adapting to a new lifestyle, there was often no time to manage large sums of money. That can lead to serious trouble. A person who loses funds intended to cover a lifetime of future medical runs the risk of losing critical medical care and independence. He or she may also have to rely on public assistance programs that carry significant restrictions. This is why, in 1982, a bipartisan coalition of legislators in Congress came together to pass legislation that amended the federal tax code. Their action, the Periodic Payment Settlement Act of 1982 (Public Law 97 473), formally recognized and encouraged the use of structured settlements in physical injury cases.
What Are Structured Settlements?
Structured settlements are an innovative method of compensating injury victims through the use of annuities. Encouraged by the U.S. Congress since 1982, a structured settlement is a voluntary agreement between the injury victim and the defendant for future periodic payments. With a structured settlement annuity, the injury victim doesn’t receive compensation for his or her injuries in one lump sum. Rather, he or she receives a stream of tax-free payments tailored to meet future medical expenses and basic living needs. A structured settlement may be agreed to privately (for example, in a pre-trial settlement) or it may be required by a court order, which often happens in cases involving minors.
Who Determines the Amount of Payments and the Payment Schedule?
In any physical injury case, the plaintiff and defendant negotiate issues such as the victim’s medical care and basic living and family needs. Oftentimes, one side (or both) will bring in an expert, such as a structured settlement planner, who provides calculations on the long-term cost of these needs. When there is agreement on the amount of damages due the injury victim (which can happen before, during or after a lawsuit), the victim can select a periodic payment plan that meets his or her needs and the defendant will agree to make the future payments via a structured settlement. The defendant then assigns this obligation to an experienced third party, a life insurance company that funds the damage payments with an annuity.
What Kind of Flexibility Do I Have in Setting Up a Structured Settlement?
Structured settlement annuities are exceptionally flexible and can be designed to meet virtually any set of needs. A relatively simple payment schedule can be set up that provides for equal payments at set intervals – for example, every month for 20 years. Yet payments need not be in equal amounts. Someone who will need a new wheelchair every three years might elect to receive a larger payment every 36 months to help defray the cost. (This would presumably be in addition to the regular payments.) Structured settlements’ inherent flexibility means that they are well-suited to compensate people for a wide variety of injuries. Your attorney or a Synergy Settlement Consulting planner will be able to explain additional details as they apply to your case.
What Are The Advantages of a Structured Settlement Over a Lump-Sum Payment?
A long-term structured settlement has several advantages. First, there is security. A structured settlement provides guaranteed long-term income. That gives the victim or the victim’s family the ability to recover without spending time and resources determining investment strategies. Second, structured settlement recipients avoid the possibility of a financial loss due to poor investment choices. Structured settlements provide a secure, low-risk source of compensation and the convenience of regular payments tailored to fit the victim’s specific needs. Third, when Congress mended the federal tax code to encourage structured settlements, it explicitly provided that 100 percent of every structured settlement payment would be exempt from federal and state income taxes. There are many other benefits as well. The victim avoids the risk of mismanaging his or her settlement proceeds. It is widely believed, although not proven, that almost a third of accident victims completely dissipate their judgments or settlements within a few months of recovery and most spend it all within five years. Structures can offer rates of return that are competitive with other investments. Finally, using a structured settlement, you can avoid the risk of outliving your recovery by transferring the risk to a secure financial institution with experience in this field.
What Are the Disadvantages of a Structured Settlement?
There are two main disadvantages:
1. The periodic payments can’t be borrowed against, deferred, accelerated or changed once set up.
2. Default risk, meaning the life insurance company that is selected is unable to make the payments. However, this risk is small due to the well-capitalized life insurance companies that are used for structured settlement annuities. Additionally, there are state insurance guaranty associations for every state that guarantee annuities up to a certain value (excludes workers’ compensation reinsurance). Finally, settlement proceeds can be spread amongst several different life insurance companies to lessen default risk.
What Are Some of the Federal Tax Rules That Make Structured Settlements Beneficial?
In the Periodic Payment Settlement Act of 1982 (P.L. No. 97-473), Congress adopted specific tax rules to encourage the use of structured settlements to resolve physical injury cases. Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement payments is tax-free to the victim. (By contrast, the investment earnings on a lump sum payment are usually fully taxable.)
A structured settlement is a proven, effective solution for the needs of personal injury victims. Personal injury lawyers advocate the use of structured settlements for their clients because they can effectively meet an injured victim’s needs for security, as well as provide more future benefits over time than a single lump sum settlement. Structured Settlement Payment
- Free from federal & state income taxes
- Tailored to your specific needs
- Protection against premature dissipation
- Guaranteed to arrive on time and in full