Structured Settlements

After you obtained your personal injury judgment, you may have received your settlement in a lump sum (after your personal injury attorney deducted costs and fees per your retainer agreement.) A structured settlement is another option, however, which you should discuss with your personal injury attorney, as well as a financial advisor. Structured settlements should be considered in any case of a large settlement, most likely a personal injury case.

A structured settlement provides you with equal payments over regular periods of time for a fixed term. The settlement amount in the judgment usually funds an annuity which pays you on a monthly basis for a certain amount of years, or perhaps your lifetime. Since a current sum can earn interest over time, the judgment debtor (or more likely the defendant’s insurer) actually spends less to satisfy your judgment than if you received a lump sum settlement.

There are important tax considerations involved with structured settlements, so you should make sure your personal injury attorney either has experience in tax law, or works with a financial advisor. Structured settlement payments may be exempt from federal taxation, but it depends very much on your particular situation and how much control you can exercise over the annuity funds. In the settlement terms, it is actually in your favor to have no control over the annuity itself so you can have the monthly income tax-free.

Guaranteed income is the most important benefit of a structured settlement. Many lump sum recipients, especially those whose injuries prevent them from working at their earning potential, spend the money quickly and without acquisition of investment or interest earning property. Structured settlements can also allow for immediate payment of unexpected expenses from a separate fund dedicated to that purpose. These agreements can be quite complex, and the flexibility available should be maximized to broker the settlement between the parties. Personal injury defendants are often more open to creative settlement terms when the amount paid is ultimately still less than a lump sum payment.

Structured settlement recipients should beware of agreements which do not allow for some payment in addition to the normal monthly amount in emergency situations. These people will likely encounter a situation which will tempt them to sell their structured settlement for a lump sum to one of the companies advertising this service on daytime television. This is generally a poor financial move because after first accepting a smaller total settlement by converting from lump sum to structured settlement, you will again receive a smaller amount when you convert back to a lump payment. You give a significant portion of your personal injury settlement to the financial institutions handling your money.

Again, a financial advisor is as important to the decision to enter into a structured settlement, and the negotiation process, as your personal injury attorney. Feel free to find your own advisors as well; you may not want to rely on an advisor who works so frequently with a personal injury attorney that terms are favorably resolved in your attorney's favor due to continued good business.