You may have heard about, or be familiar with, the term “structured settlement”. We take this opportunity and use this month’s column to explain what a structured settlement is, and to discuss its advantages. Next month, we’ll explore some of the arcane details, answer some of the anticipated “what if” questions that you may have, and explain when it might be best to avoid using this vehicle as a settlement method in your particular case.
What is a Structured Settlement?
In its simplest form, a structured settlement is an annuity contract between you, a person receiving settlement funds as a result of a physical injury, and an insurance company, which in return for a premium payment – all, or more often a part of your settlement funds – agrees to pay out that settlement over a specific period of time with interest.
A structured settlement carries the benefit of guaranteed payments with a fixed interest rate. If the rules are followed, the entire amount of those payments will be 100% tax-free. While personal injury payments themselves are generally tax-free, any income that you earn on investing that settlement (such as savings account interest, or stock market dividends and gains) are taxable. A structured settlement also acts as a guard against dissipation of settlement funds; since the benefits are paid over a set time schedule, you won’t have to worry about impulse spending.
Should You Accept a Structured Settlement?
A structured settlement is not appropriate in every case. It’s probably not worthwhile for a settlement with a smaller payout, or for someone with a genuine need for immediate access to all or most of the settlement funds.
What Are the Advantages of a Structured Settlement?
The advantages of a structured settlement are most dramatic in cases involving a substantial payout to a young child, either for that child’s own injury, or in a case where a young child is a beneficiary of a wrongful death settlement. Working with expert brokers in the structured settlement field, the personal injury attorneys at Worby Vecchio Edelman have arranged for guaranteed lifetime monthly payments, some with yearly increases. These monthly payments can be coupled with “lump sum” payments for milestone life cycle needs, such as college tuition, or the purchase of a home. The payout can be structured in any fashion which suits that client’s personal needs.
One of the more dramatic examples of the advantages of a structured settlement that we have seen involved a very young child whose father was killed in a tragic accident; she was only three years old when the case settled. By use of a structured settlement, that child began receiving lifetime monthly payments when she turned 18 years of age, starting at about $1,100 per month, and increasing at the rate of 3% per year, payable for her entire lifetime. By the time she reaches the age of 75, she will receive $25,000 per month. This is all in addition to several lump sum payments of tens of thousands of dollars, all guaranteed, and all tax free.
A structured settlement can also be very advantageous for a middle-aged client, or even a client approaching retirement, because the payments are guaranteed.
There are significant advantages for a client to use a structured settlement, and we will explain those advantages, and even recommend it to a client when we believe that it is appropriate for that client’s individual circumstance. There is no financial incentive to our firm for any client to choose a structured settlement. We receive no additional legal fee from structured settlement payments, and no upfront fee from the client or any other entity. Our fees are paid as a percentage of the original settlement amount; we receive the same exact fee whether the client chooses a structured settlement, or a lump sum payout of the entire settlement proceeds. While the structured settlement broker receives a commission for its services in setting up the arrangement, that commission is paid by the life insurance company, and not by the client.
While we collectively believe that a structured settlement is advantageous in many cases and should be strongly considered, it is ultimately for each client to decide whether to use this vehicle. In next month’s column, we will discuss circumstances in which a structured settlement might not be the best choice, and possible circumstances that can arise when a structured settlement is chosen.
Contact Us to Find Out if Choosing a Structured Settlement is Right for You
The question of whether you choose a structured settlement and whether it is right for you in your individual circumstance is just one of the questions that you will encounter during the course of our representation. The White Plains accident attorneys have years of experience in the field, and we can help you navigate the way through all of the issues that occur during your case. We consider client communication to be among the most important service that we can offer to you. Call us at any time, and we’ll discuss your own situation over the phone, or if you would prefer, in our office. We are here for you, and available. We never charge a fee for a consultation; we get paid at the end of the case, and even then, only if we recover money for you.