May 30, 2017

Why Structured Settlements?

Structured Settlements offer several short and long-term advantages for individuals seeking to receive guaranteed payments instead of one lump sum. Receiving installments, as an alternative to a lump sum, protects claimants from unnecessary expenditures and debt by securing a future stream of income. Proceeds from the settlement are invested into money market accounts and annuities in order to accrue interest over a specified term. Tax bonuses for these settlements consist of a lifetime exclusion from income, dividend and capital gains taxes.

Eligibility for both federal and private health care would not be affected due to the Structured Settlement. If an individual were receiving health care aid, they would be entitled to continue receiving that aid throughout the disbursement phase. When settling a case, claimants generally decide to structure their settlement because of the immediate advantages it has over a cash disbursement.

Firstly, the tax-free status on payments made by the party being sued (the defendant) is extended to both the premium and the interest earned on the invested proceeds. For example, if a claimant (the plaintiff) settles in court for $2 million and the lifetime payout from these funds being invested is estimated at $3 million, then the whole amount of $3 million would be income tax-free.  If the plaintiff were to receive the $2 million in a single lump sum, any gains on that premium would be considered taxable. By allowing our consultants at Vega Settlement Group to structure your settlement, any income taxes on the $1 million gain would be avoided.

Secondly, a Structured Settlement provides financial independence for the claimant in what is known as “spendthrift protection.” This means that the claimant, because of the way the settlement will be structured, will not outlive his or her funds due to bad judgment or advice from others.

Unfortunately, it is a statistical fact that a person who receives their settlement in a lump sum will spend the entirety of their money within 5 years. This is noted to occur in 9 out of 10 cases, or simply 90% of the time.¹ By consulting a Structured Settlement specialist at the Vega Settlement Group, we will try and help you to not be part of the statistic.

¹ (The Rutter Group, Ltd. from Flahavan, Rea, Kelly & Tener, “California Practice Guide: Personal Injury” (TRG 1992) Ch. 4.)