A structured settlement, also called a periodic payment settlement, is a lawsuit claim settlement when some or all of of the proceeds from the settlement will be payed out in deferred installments instead of immediate cash payments. What does this mean?
Settlements paid in a single lump sum, especially in catastrophic injury cases, frees the recepient, and their family, of having to manage and deal with money which may be intended to provide for an entire lifetime of medical and income needs. Most people are not ready or able to deal with a large windfall of money, and are either forced to hastily invest in different investment vehicles or work with a financial professional in order to determine where and how to invest the proceeds.
Structured settlements were developed in order to create a conservative and trusted financial plan for those who need them. In the early 1980’s, the use of structured settlements was encouraged by Congress and tax code was written as such. Instead of receiving a large lump sum of money, guaranteed cash payments can be made to you over time, through the purchase of an annuity, to suit the claimant in need of a regular montly payment.
The IRS has developed code that makes sure that you will never pay taxes on any of the payments, principal and interest.
If a single lump sum payment is taken as compensation for an injury, it is tax-free but any additional income (called “Interest Income”) you receive from investing the lump sum will be taxable. The bottom line is that structured settlements provide you with a unique opportunity to take advantage of an investment without risk OR tax consequences.
Payments from a structured settlement can be scheduled for any length of time needed, even for your lifetime. Payment designs can include bi-weekly, monthly, quarterly or annual payments as well as future lump sums. Payments can be in level amounts or can keep up with inflation by using a Cost of Living Adjustment, called COLA.
Contact us to work with an experienced professional; we will work with you to establish a payment design and frequency. You can remain confident that your financial needs, both present and future, are addressed.
