Structured Settlement vs. Lump Sum Award Payments

Structured settlements are agreements to pay money to a successful plaintiff in a series of smaller payments rather than one lump sum. There are clear advantages to obtaining compensation payments in a series of smaller amounts, firstly because of the tax advantages, but also because it prevents the recipient from being able to spend it too quickly. If you are properly advised at the start, you may not have to pay any tax on any of your structured settlement payments.

How A Structured Settlement Works

Structured settlements vary enormously; from payments spanning a few years to the whole of a person’s lifetime. Because structured settlements are paid in line with inflation, you receive more money over a longer period of time than you would if you were paid one lump sum. They can be advantageous to the individual or entity responsible for the payments, as the structured settlement itself is purchased by way of an annuity. This annuity in turn pays the installments, which means that the responsible party actually pays less than the sum of all the payments together.

Should You Sell Your Structured Settlement?

However it is also true that lump sum payments, invested properly, could yield higher long term returns than a structured settlement. Similarly, accepting payments over a longer period of time does not afford individuals with much flexibility to use their money in the way they wish. This is why selling your structured settlement is often attractive, although in the majority of states there have been recent changes in the law in relation to this subject area.

In forty four states, if you wish to sell your structured settlement you will have to apply to the court for approval of that sale before it can occur. This is to prevent those in receipt of structured settlements from being the victims of abuse of the system or fraudulent activity. If the purchaser of the structured settlement does not comply with these laws, they can face an excise tax of 40%.

When an injured party receives a substantial settlement they are likely to have a lot to contend with in terms of recovery, or learning to cope with a permanent injury. Lump sum settlements can unfortunately attract pleas for money from relatives, friends and even strangers. A structured settlement goes a considerable way to alleviating these problems, and is also a wise option if you are not confident about your ability to control your spending.

If you have questions about a personal injury case, contact a specialist attorney today.

 

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