Structured Settlements Overview – Seattle, Washington, and Buffalo, New York, Experts Advise

If you are in the process of settling a personal injury or wrongful death lawsuit, a structured settlement – disbursement of your settlement in periodic payments, instead of in an initial lump sum – may be your best option. Individuals considering their settlement options should enlist the help of skilled experts before making a decision, since not every case or situation is suited to structured settlements. In Seattle, Washington, Buffalo, New York, and communities all across the nation, Paul Isaac and Anthony Alfieri provide outstanding services for plaintiffs and their attorneys, assisting with each step of the structured settlement planning process. If you do not find the answer to your question on our website, contact Settlement Professionals, Incorporated to arrange a consultation with one of our structured settlement brokers.

What Is a Structured Settlement?
What Are the Benefits of Structured Settlements?
Choosing a Structured Settlement – Questions to Ask

What Is a Structured Settlement?

In its most basic sense, the term “structured settlement” simply means that settlement payments will be made over time. So, instead of taking your entire settlement or judgment immediately in cash, you can negotiate with the defendant, or the defendant's insurance company, to “structure” all or a portion of your recovery in order to obtain periodic payments designed to coincide with your future needs or goals. The most common use of a structured settlement is to help personal injury victims (plaintiffs) who have suffered physical injuries pay for long-term medical care and rehabilitation, in conjunction with (or in the place of) a cash settlement.

The Structured Settlement Process

The original defendant or defendant’s insurer will generally “assign” the obligation to make the future periodic payments to a specifically designated Assignment Company owned by a major life insurance company. You may be familiar with the names of such life insurance companies, including New York Life, MetLife, and John Hancock. The future periodic payments are then paid directly to you by the life insurance company in the form of structured annuities.
The terms of the structured settlement become part of the Settlement Agreement and Release you sign with the defendant and/or defendant’s insurance company. The check to fund the future payments is sent directly from the defendant or the defendant’s insurer to the Assignment Company or life insurance company. By ensuring that constructive receipt is not triggered, this process preserves the favorable tax treatment of the structured settlement pursuant to the Internal Revenue Code and the regulations promulgated there under.

What Are the Benefits of Structured Settlements?

A structured settlement offers the personal injury claimant a variety of benefits to meet his or her needs and goals following a physical injury. Some of these benefits are described below.

Favorable Tax Treatment (Tax-Exempt and Tax-Deferred Structured Settlements)

Unlike typical annuities that generate taxable interest, both the principal and interest generated from structured settlement annuities used in the resolution of a legal claim involving physical personal injuries are completely exempt from federal, state, and local income taxation.

This tax exempt status is an exclusive benefit to plaintiffs who have sustained physical injuries, approved by Congress in 1982 under Internal Revenue Code §104(a)(2). With some limitations (such as punitive damages), all damages collected as compensation for physical injury, whether paid as a lump sum or in periodic payments, can be excluded from gross income.
If your settlement is taxable, you may be eligible to negotiate a tax-deferred structured settlement. So, instead of accepting an immediate lump sum and turning over a significant portion to the United States Treasury, the entire settlement can be structured on a tax-deferred basis. This essentially means that you are able to use the entire amount of the settlement to gain additional appreciation on your money compared to the net settlement, if properly drafted. You are only taxed on the payments received in each year.

Settlements for Family Members, Disabled Persons, and Other Special Cases

Compensation is considered to be awarded for physical injuries if the personal injury claim is based on observable physical harm caused to someone, and if this injury is grounds for deriving a legally recognizable claim. Obviously, if you are the one harmed, your claim is for your own injury. If your spouse, child, or parents are harmed, you may have a claim for damages based upon your relationship with the injured party. For example, if one spouse is fatally injured in a car accident, the surviving spouse may be able to obtain compensation for the loss of the relationship. He or she may also seek recovery as the beneficiary of the Estate of the deceased spouse.

Certain Worker’s Compensation settlements [IRC §104(a)(1)] and disability settlements [IRC §104(a)(3)] may also be structured on a tax-exempt basis.

Structured Settlements Can Be Tailored to Meet Your Needs

Whether you want to retire earlier then planned, need extra money each month to supplement or replace reduced earnings as a result of your injury, or want to have extra income when your children are ready to attend college, structured settlements can be tailored specifically to meet your future needs or goals. Examples of such payments which can be structured to fulfill your financial needs include:

Future college payments
Anticipated future medical needs or surgeries
Retirement income
Supplemental monthly income
Lump sum payments with guaranteed tax-free growth built in

For more information about tailoring structured settlements to meet your needs, contact our Seattle, Washington, or Buffalo, New York, offices.

Customizable Payment Streams

Future payments do not need to be paid in equal amounts or at specific times. Our structured settlement brokers will work with you to determine your short- and long-term financial needs and goals, and help you create a payment structure that helps you satisfy those needs or reach those goals one by one. Almost anything you can imagine can be implemented for your customized structured settlement, given sufficient funding.
Your structured settlement can include monthly payments, lump sum payments, annual payments, or a combination of each. This flexible structuring provides you with the comfort of knowing that your income stream is created around your current and future needs and not just a one-size-fits-all plan.

Fixed and Guaranteed Rate of Return

A fixed and guaranteed rate of return is considered to be one of the greatest benefits of a structured settlement. This feature provides predictability and security for your long-term planning. For more information about the fixed and guaranteed rate of return on structured settlements, contact our Seattle, Washington, or Buffalo, New York, offices.

Minors’ Settlements

Structured settlements are almost always suitable for settlements involving minors. There are three basic dispositions for minors’ settlements that courts will typically approve: 1) blocked savings accounts; 2) trusts and managed accounts; or, 3) structured settlements. The primary goal with minors’ settlements is capital preservation – not necessarily growth. Blocked savings accounts are generally the most secure, but they typically provide only a nominal interest rate. Trusts or managed accounts can be tricky because there is the potential risk of losing money or having the account cannibalized by management fees. Additionally, it can be difficult to find a trust company that will agree to manage settlements under $250,000.00.

Structured settlements provide a suitable middle ground for minors’ settlements. Structured settlements will almost always provide a higher rate of return than a blocked savings account: there are no ongoing management fees; the rate of return is fixed, and the guaranteed payments, including the appreciation, are completely tax-exempt (assuming it complies with IRC §104(a) (2)). Additionally, structured settlements have the flexibility of handling settlements of any size.

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Choosing a Structured Settlement – Questions to Ask

If you are considering forming a structured settlement, you should carefully weigh all the benefits, as well as the risks. A talented structured settlement broker can guide you through the questions you should ask yourself in the settlement planning process. For more information about structured settlements, contact the Seattle, Washington, or Buffalo, New York, offices of Settlement Professionals, Incorporated.

What Does Your Settlement Represent to You?

In evaluating whether a structured settlement suits your needs, you must ask yourself what the settlement is intended to do for you. Is the settlement meant to compensate you because you can’t work or because your earning capacity is now diminished? If your answer is “yes,” a structured settlement should strongly be considered as a secure method to replace what you have lost on a monthly basis. Structured settlements are a great way to establish your “FedEx” money – the money you must have each month to live on and pay regular expenses. After you have allotted enough money from the settlement to get out of debt, buy a new toy or two, and meet your income needs or goals, you can then take risk with your remaining settlement proceeds by placing them in mutual funds or longer term investments.

How would you feel if you lost part of your settlement?

Another significant consideration in evaluating your suitability for a structured settlement is how you would feel if you lost part of your settlement money in investments. Even if you are an experienced investor and are used to the ups, downs, and fluctuations of other investments, your settlement proceeds may represent something more to you than money. Perhaps your settlement proceeds were paid to compensate you for the loss of a loved one or to replace a lost limb. Symbolically, your settlement proceeds may mean something more to you than other monetary resources. We have had clients tell us that they would be sick over losing settlement money that represented the loss of a parent. While annuity companies occasionally can and do fail, the financial strengths and ratings of the life companies, as well as various state statutory protections, can significantly minimize the potential risks and protect your structured settlement.

What do you want your settlement to do for you?

As you reach the financial phase of your settlement, you will have control over how your settlement will be used. All decisions about settlement planning and related matters will be in your control. In short, you will have the power to say “yes” or “no” regarding the payment and use of your damages.

Contact Settlement Professionals, Incorporated

At Settlement Professionals, Incorporated, we want to help you make the most informed decision possible about your personal injury or wrongful death settlement. For more information about structured settlements, contact Settlement Professionals, Incorporated. We serve Seattle, Washington, Buffalo, New York, and communities nationwide.

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