Structured settlements: Defined |
By Maryam Farooq on March 25, 2011
.jpg.aspx?width=75&height=75) Defined:
A structured settlement arrangement is a court ordered cash payment system structured through an annuity-type payment over a long period of time. It is often awarded in civil actions where long-term costs of living are taken into account, as well as the subsequent need to acquire those cash payments in the future. A structured settlement tailors to the claimant as the periodic payment plan protects against economic loss of squandering a larger amount of money early on, as what would have been rewarded through the once popular lump sum settlement.
Explained:
It is because of this associate risk of frittering away large payments up front that the Courts began awarding structured settlements as alternatives to lump sum settlements in the 1970s. Structured settlements offer the incentive of added financial protection for the victim’s future, as well as how a smaller and more drawn out payment schedule makes recompense more palatable for the defendant. Further, cash payments are free of tax liability on both the State and Federal level; while a with a lump sum settlement, any investment income or capital gains realized on the settlement over time would be subject to taxation.
Another benefit of opting for a structured settlement is that many are agreed upon outside of court. No litigation means lower attorney fees, and not going to court can reduce the fee you would pay as much as 8% of the total settlement. Along with coming out better financially, it is also a safer bet; while there is always the possibility of coming out ahead via litigation, there is also the possibility present of you coming out behind what you would have received from a negotiated structured settlement.1
Illustrated:
A common structured settlement case seen today is when a victim claims insurance. The claimant, here the injured part, files suit with the defendant, here the insurance carrier. The insurer agrees to a structured settlement in which they will periodically make payments to the victim over a period of time. Insurance companies tend to approach this in one of two manners: either by entrusting payment to a third party, who then purchases a qualified funding asset to finance the settlement obligation or by purchasing an annuity from a life insurance company, consequently offsetting the payment obligation with a comparable asset.2 Either way, however, the victim receives their money, tax free, and in regular installments.
Sources
1http://www.seniormag.com/legal/structured-settlements-benefits.htm
2http://en.wikipedia.org/wiki/Structured_settlement#cite_note-8
Note: Many companies specialize in buying structured settlements, leaving the owner with a paltry payoff and taking the lion's share of the award.
|
Current Rating: 0 (0 ratings)