Douglas V. Stoehr
Injury Lawyer
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What Is a Structured Settlement?

At times Attorney Stoehr suggests that his clients invest their settlement funds into a structured settlement. This document will highlight the benefits of a structured settlement.

What Is a Structured Settlement?

The net settlement funds of the client are structured to meet the client’s unique needs. A structured settlement gives the client a greater total payout over time than a one-time lump sum settlement. This happens because the payments are made over time and include tax free interest, as a growth factor for the amount invested. A structured settlement can be ideal if you have been the victim of a personal injury due to someone’s negligence.

How Is a Plan “Structured” to Meet a Claimant’s Unique Needs?

The key to a structured settlement is the flexibility of payments. With a structured settlement, you can apportion an amount of your settlement for your immediate cash needs. The balance will be paid to you as payments for a particular period of time, which is chosen by you. For example, you can receive checks monthly, quarterly, or yearly. For a child under age 18, distribution in the form of payment will not be made until the child reaches at least age 18. In fact, the parent can set the date for the initial distribution of payment, which may be years beyond 18. A good example of this would be funds for college.

Are There Income Taxes on Structured Payments?

No federal income taxes are due on the entire amount of each structured settlement payment under current Internal Revenue Code law. In other words, the amount invested into the structured settlement will increase due to growth, but there will be no taxes for the beneficiary at any time. Both the principal and earnings are tax-free.

A key point to remember is the following: It is almost always necessary that the settlement funds be placed into a structured settlement at the time of the claim settlement. In other words, to gain the tax advantage, the structured settlement must be chosen at the time you are provided the net amount of your settlement from your attorney or the insurance company. You cannot see the money now and invest it years later into a structured settlement.

Are Structured Payments Guaranteed?

Structured payments are guaranteed no matter what happens to interest rates or the stock market. You do not have to worry about where to invest or reinvest the settlement.

How Is a Structured Settlement Funded?

Most structures are funded with annuity contracts. The Defendant, Insurer, or the Insurer’s Assignment Company, must buy and own the funding contract. This is necessary to assure your payments are tax free. However, the owner of the annuity contract is responsible for providing you with the payments on the dates that you choose at the beginning of the annuity contract.

What Happens to the Structure Payments if the Claimant Dies?

The structure plan can have payments guaranteed for life or for fixed periods of time. Often, the structure can have payments designed that are made whether or not you die before all the payments have been made. With this option, you can name a beneficiary who will receive any remaining payments after you pass away which will remain free from federal income taxation.

In conclusion, Attorney Stoehr works with several structured settlement professionals who closely watch the interest and growth rates of various life insurance companies who sell annuities. These annuities are the funding sources for your structured settlement. Structured settlements are not for everybody, but are a nice alternative to the traditional lump sum payment from the defendant or insurance company. You should consider a structured settlement if you have the need for periodic payments for months or years after your claim settles. They are ideal for children under the age of 18 who, by law, cannot access their settlement funds at all before age 18 in most states.

If you settle a claim with Attorney Stoehr and have an interest in a structured settlement, he will place you in touch with a structured settlement professional to discuss your options.