January 19, 2018

What Is A Structured Settlement?

A Structured Settlement is a voluntary agreement between settling parties for a release of claims in exchange for the promise by the defendant to make one or more future payments to the injured party. These types of arrangements are appropriate for situations in which a person prefers periodic payments in fixed amounts, or for a specific amount of time, rather than one lump sum. The immediate advantages of a Structured Settlement include financial independence and guaranteed income.

Surprisingly, receiving a large sum of money at one time can have not only positive attributes, but also many negative attributes because a claimant, along with his/her family, is placed in the position of managing a large sum of money that may be intended to cover future medical and income needs. Since most people are not experienced in handling large sums, the settlement award will most likely be spent on unnecessary things and, as a result, the injured party will not have enough money to cover his/her future needs.

The immediate benefits that Structured Settlements provide are:

  • Financial security because the injured party is guaranteed future payments, with the proper plan design.
  • Opportunity for growth on your settlement proceeds.
  • Tax benefits since any gains on the proceeds are tax-free, under Section 104(a)(2) of the Tax Code.
  • No disruption of health care eligibility for those receiving aid, with the proper trust in place.

Structured Settlements provide you with an opportunity to benefit from earning interest without federal tax consequences. How great does that sound?

Congress encouraged the use of Structured Settlements in 1982 by writing Section 104(a)(2) of the Tax Code, with the intent to benefit its recipients. The Internal Revenue Service (IRS) is also in favor of Structured Settlements, as they have ascertained that an individual will never pay taxes on either the principal or interest received throughout the disbursement phase, if they decided to structure. Once the settlement is structured distributions can be paid in future lump sums, on specified dates, monthly, quarterly, annually or in some combination of these options. At Vega Settlement Group, we make it our commitment to have these payments reflect the future obligations and goals of the client, thus protecting them from outliving their financial resources.