What Is A Structured Settlement?
Structured Settlements occur when lump sum payments for your injuries are not feasible.
You have already filed a personal injury lawsuit and the court has found you entitled to compensation for your injuries but the opposing party cannot pay you up front.
The idea for a structured settlement is straightforward and one of the easiest legal terms to comprehend. A structured settlement is a financial understanding settled with monthly or weekly payments for your injuries. Simply, it is a payment plan set up by your personal injury attorney over a certain amount of time for damages owed.
To guarantee that you get paid over time, your personal injury attorney will make the defendant take out an annuity, so they are bound to making payments.
Time Value of Money with Structured Settlements
With time value of money, you might be entitled to more money with a structured settlement than with a lump sum payment now. The additional money comes from the fact that you could invest a payment now and make a profit on the interest.
For example, If the defendant owes you $100,000, you could put that into a 5 percent savings account and make $5,000 a year in interest. If the structured settlement is three years, your personal injury lawyer should be able to get the defendant to pay you $115,000 over the three years.
Structured settlements were initially introduced in the United States in the early 1970s. They were created because it is far better to get monthly payments than to get nothing at all if the defendant can’t pay.
Some Benefits with Structured Settlements
One monetary advantage of your
personal injury attorney setting up a structured settlement for your compensation is that in some cases the payments can be free of taxes. Tax-free payments can save you up to 20 and 30 percent of your compensation.
For example, if you are entitle to $100,000, you could have the option of getting $80,000 up front minus taxes or $115,000 over three years while being patient. That is a $35,000 gain for taking on a structured settlement.
Most attorneys will also advise you that structured settlements are good for immature young adults who may not know what do with a large lump sum of money.
If an 18-year-old young man was in a serious car accident and is set to receive $50,000, his parents won’t control the money because he is of age, but he might also waste the money. Therefore a structured settlement can help the 18 year old spend the money only on what is absolutely necessary with a monthly stipend, maybe for his education.
Structured Settlements Statistics
- A 2005 study explained that each year as much as $6.5 billion dollars worth of structured settlements are created through personal injury attorneys
- In addition, it has been proven that more than 33 percent of clients who ask for and acquire lump sum payments through their personal injury lawyers spend the money within 60 days
- A 2006 study explained that in addition to taxes, those who have taken a lump sum payment lost 10 percent more of their money because they hired an investment firm to invest the large sum of money
- With taxes and investment costs, you could lose 30 to 40 percent of your lump sum
Structured Settlements are Flexible
If you decide on a structured settlement there is the possibility of getting out of it at a later date. You may decide midway through the structured settlement that you are in financial trouble and simply need the money now. If this is the case, you may need to hire legal counsel to attempt to get our of the settlement.
In the event you need money now for financial reasons, your lawyer can exchange your payments for one lump sum and you can have that money almost immediately. There are also companies that will buy out your structured settlement for a large sum.
It is never a bad idea for you and your personal injury attorney to go with a structured settlement when it comes to your compensation. It is crucial to take care of your interests and the interests of your family. A structured settlement is one way to do that.