Structured Settlement

A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including: Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlement. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments”. A structured settlement incorporated into a trial judgment is called a “periodic payment judgment”.

The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the Federal Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations impact structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” the “Special Needs Trusts”.

Definitions

The United States defines “structured settlement” for Federal income taxation purposes in Internal Revenue Code Section 5891 (c) (1) as an "arrangement" that meets the following requirements:

* A structured settlement must be established by:
o A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2); or
o An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1); and
* The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) and must be payable by a person who:
o Is a party to the suit or agreement or to a workers compensation claims; or
o By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with Internal Revenue Code Section 130.

"WikiPedia"

A structured settlement is a monetary obligation paid to a victim in case of injury. These payouts are a result of a lawsuit and the offenders make payments through insurance companies. This is a legal payment that has to be made regularly for the period it is structured for. In most cases, the victim is incapacitated, has endured loss in earnings due to absence at work or is rendered incompetent as a result of the injury. In such cases, the lawyers of both parties negotiate this payment and the amount of reimbursement decided upon, is documented in a contract.

The amount of reimbursement decided upon is largely dependant on the victim's lawyer. It is important to hire a reputed lawyer, who is able to make accurate estimates of long-term monetary losses incurred. He bargains with the defendant, to acquire a rightfully structured settlement. There are a number of details that need to be considered when calculating structured settlements. These include the degree of disability, severity of the accident, estimated future income of the injured person and approximate medical expenses. Structured settlements are designed to provide an adequate cash flow for an injured person.

Structured settlements, also known as annuity settlements, are considered to be a secured long-term and tax-free income. These payouts safeguard the interest of the beneficiary. The structured settlement should remain tax-free and protected during the tenure. The receiver cannot demand payment augmentation or advances. This proves to be a disadvantage in case people need quick cash or a large sum of money instead of a regular monthly payment. In such situations, people can contact a funding company. These specialized institutions purchase structured settlements at a reduced rate. When in need, people can sell a part of the settlement or the entire contract, to meet their needs.