A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlements. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments.” A structured settlement incorporated into a trial judgment is called a “periodic payment judgment."
Jul 28, 2009
Structured Settlements in the United States
The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the (federal) Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations affect structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” “Special Needs Trusts."
Structured settlements have been endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities and the National Organization on Disability .
In April 2009, financial writer Suze Orman wrote in a column that structured settlements "provide ongoing income and reduce the risk of blowing a lump sum through poor financial choices." In response to a reader's question, she added that financial security can be improved "if you use the structured payouts wisely."
Definitions
The United States definition of “structured settlement” for federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1) (26 U.S.C. ), is an "arrangement" that meets the following requirements:
- A structured settlement must be established by:
- A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. ); or
- An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. ); and
- The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C.) and must be payable by a person who:
- Is a party to the suit or agreement or to a workers' compensation claim; or
- By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. ).
Legal Structure
The typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity (which arrangement is called an "assigned case").
In an unassigned case, the property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.
In an assigned case, the property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obligor is desirable for property/casualty companies that do not want to retain the periodic payment obligation on their books. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.
An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 [2]. Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes. If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.
Life Annuity
A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer)—typically a financial institution such as a life insurance company—makes a series of payments in the future to the buyer (annuitant) in exchange for the immediate payment of a lumpsum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity. The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate unless there are other annuitants or beneficiaries in the contract, and the remainder of the fund accumulated is forfeited. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.
Disability
Disability is defined by the Americans with Disabilities Act of 1990 as "a physical or mental impairment that substantially limits one or more major life activities." An individual may also qualify as disabled if he/she has had an impairment in the past or is seen as disabled based on a personal or group standard or norm. Such impairments may include physical, sensory, and cognitive or intellectual impairments. Mental disorders (also known as psychiatric or psychosocial disability) and various types of chronic disease may also be considered qualifying disabilities.
Internal Revenue Code
The Internal Revenue Code (or IRC; more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes and statutory excise taxes. The Internal Revenue Code is published as Title 26 of the United States Code (USC), and is also known as the internal revenue title. Its governing authority is the Internal Revenue Service.
Medicaid
Medicaid is the United States health program for eligible individuals and families with low incomes and resources. It is a means-tested program that is jointly funded by the states and federal government, and is managed by the states. Among the groups of people served by Medicaid are certain eligible U.S. citizens and resident aliens, including low-income adults and their children, and people with certain disabilities. Poverty alone does not necessarily qualify an individual for Medicaid. It is estimated that approximately 60 percent of poor Americans are not covered by Medicaid. Medicaid is the largest source of funding for medical and health-related services for people with limited income in the United States. Because of the aging population, the fastest growing aspect of Medicaid is nursing home coverage.
Special needs trust
A special needs trust is created to ensure that beneficiaries who are disabled or mentally ill can enjoy the use of property which is intended to be held for their benefit. In addition to personal planning reasons for such a trust (the person may lack the mental capacity to handle their financial affairs) there may be fiscal advantages to the use of a trust. Such trusts may also avoid beneficiaries losing access to essential government benefits.
A trust for a disabled beneficiary may be set up in any of the common law countries or other countries which recognise the concept of the trust. They have particular advantages in legislation in relation to both taxation and state benefits in for example Ireland and the United Kingdom and in relation to the provision of healthcare, long-term care and nursing home benefits under the state-sponsored Medicaid welfare system in the United States of America.
Special needs trusts can provide benefits to, and protect the assets of, the physically disabled or the mentally disabled. Special Needs Trusts are frequently used to receive an inheritance or personal injury settlement proceeds on behalf of a disabled person or are founded from the proceeds of compensation for criminal injuries, litigation or insurance settlements.
A common feature of trusts in all common law jurisdictions is that they may be run either by family members (a private trust) or by trustees appointed by the court. Especially where a trust is to be established for a disabled child or young person, great care is generally taken in the choice of appropriate trustees to manage the trust assets and to deal with future replacement appointments. The use of a private discretionary trust can not only be more efficient in terms of taxation and access to government benefits but can also allow for more efficient investment of funds held than where funds are held by a court official (such as the Official Receiver in England and Wales). However where no appropriate trustees can be found, e.g. on the death of existing trustees, the court will intervene.
Special Needs Trusts are often set up under the guidance of a Structured settlement planner in cooperation with a qualified legal and financial team to ensure the trust is set up correctly.
Special Needs Trusts are also known as Supplemental Needs Trusts in the USA and a more detailed article on the US specific characteristics of such trusts, including their interaction with the Medicaid system, is found at that page.
Structured sale
A structured sale is a special type of installment sale pursuant to the Internal Revenue Code. Installment sales permit sellers to defer recognition of gains on the sale of a business or real estate to the tax year in which the related sale proceeds are received. Structured sales allow the seller of an asset to pay taxes over time while having the payments guaranteed by a high credit quality alternate obligor, who accepts assignment of the buyers periodic payment obligation. Transactions can currently be done as small as $100,000.
In a structured sale, rather than the buyer paying the installments, the buyer pays cash, some of which is used as consideration for a third party assignment company to accept the payment obligation. The assignment company then purchases an annuity from a life insurance company with high financial ratings from A. M. Best. Case law and administrative precedents support recognition of the original contract terms after a substitution of obligors. In addition, a properly handled transaction will avoid issues with constructive receipt and economic benefit.
While negotiating the installment payments, the seller is free to design payment streams with a great deal of flexibility. Each installment payment to the seller has three components: deferred return of basis, deferred capital gain, and ordinary income earned on the money in the annuity. Under the doctrine of constructive receipt, with a properly documented structured sale, no taxable event is recognized unless a payment is actually received. Taxation is the same as if the buyer were making installment payments directly.
Structured sales are an alternative to a section 1031 exchange, which defers recognition of capital gain, but forces the seller to continue holding some form of property. Structured sales work well for sellers who want to create a continuing stream of income without management worries. Retiring business owners and downsizing homeowners are examples of sellers who can benefit.
The structured sale must be documented, and money must be handled in such a way that the ultimate recipient is not treated as having constructive received the payment prior to the time it is actually paid. For the buyer, there is no difference from a traditional cash-and-title-now deal, except for additional paperwork. Because of tax advantages to the seller, structuring the sale might, however, make the buyer's offer more attractive. Because the buyer has paid in full, the buyer gets full title at time of closing.
There are no direct fees to the buyer or seller to employ the structured sale strategy. The structured settlement specialist who implements the transaction is paid directly by the life insurance company that writes the annuity.
The internal rate of return is comparable to long term high quality debt instruments.
Allstate Life was the originator of the structured sale concept and is the only structured settlement annuity company whose product was available for the structured sale transaction.
Internal Revenue Service Private Letter Ruling 150850-07 dated June 2, 2008 confirmed that the taxpayer does not constructively receive payment for tax purposes until the actual cash payment is made pursuant to a properly drafted non-qualified assignment.
Structured settlement factoring transaction
A structured settlement factoring transaction describes the selling of future structured settlement payments (or, more accurately, rights to receive the future structured settlement payments). People who receive structured settlement payments (for example, the payment of personal injury damages over time instead of in a lump sum at settlement) may decide at some point that they need more money in the short term than the periodic payment provides over time. People's reasons are varied but can include unforeseen medical expenses for oneself or a dependent, the need for improved housing or transportation, education expenses and the like. To meet this need, the structured settlement recipient can sell (or, less commonly, encumber) all or part of their future periodic payments for a present lump sum.
Tort
Tort law is a body of law that addresses, and provides remedies for, civil wrongs not arising out of contractual obligations.A person who suffers legal damages may be able to use tort law to receive compensation from someone who is legally responsible, or liable, for those injuries. Generally speaking, tort law defines what constitutes a legal injury and establishes the circumstances under which one person may be held liable for another's injury. Torts cover intentional acts and accidents. In contrast to criminal law (in which the offense is against the State and the State is the plaintiff), in tort law, the offense is against a person and that person is the plaintiff.
For instance, Alice throws a ball and accidentally hits Brenda in the eye. Brenda may sue Alice for losses occasioned by the accident (e.g., costs of medical treatment, lost income during time off work, and pain and suffering). Whether or not Brenda wins her suit depends on if she can prove Alice engaged in tortious conduct. Here, Brenda would attempt to prove Alice had a duty and failed to exercise the standard of care which a reasonable person would render in throwing the ball.
One of the main topics of the substance of tort law is determining the standard of care—a legal phrase that means distinguishing between when conduct is or is not tortious. Put another way, the big issue is whether a person suffers the loss from his own injury, or whether it gets transferred to someone else.
Returning to the example above, if Alice threw the ball at Brenda purposely, Brenda could sue for the intentional tort of battery (and the action might also, separately, be a crime against the State). If it was an accident, Brenda must prove negligence. To do this, Brenda must show that her injury was reasonably foreseeable, that Alice owed Brenda a duty of care not to hit her with the ball, and that Alice failed to meet the standard of care required.
In much of the western world, the touchstone of tort liability is negligence. If the injured party cannot prove that the person believed to have caused the injury acted with negligence, at the very least, tort law will not compensate them. Tort law also recognizes intentional torts and strict liability, which apply to defendants who engage in certain actions.
In tort law, injury is defined broadly. Injury does not just mean a physical injury, such as where Brenda was struck by a ball. Injuries in tort law reflect any invasion of any number of individual interests. This includes interests recognized in other areas of law, such as property rights. Actions for nuisance and trespass to land can arise from interfering with rights in real property. Conversion and trespass to chattels can protect interference with movable property. Interests in prospective economic advantages from contracts can also be injured and become the subject of tort actions. A number of situations caused by parties in a contractual relationship may nevertheless be tort rather than contract claims, such as breach of fiduciary duty.
Tort law may also be used to compensate for injuries to a number of other individual interests that are not recognized in property or contract law, and are intangible. This includes an interest in freedom from emotional distress, privacy interests, and reputation. These are protected by a number of torts such as infliction, privacy torts, and defamation. Defamation and privacy torts may, for example, allow a celebrity to sue a newspaper for publishing an untrue and harmful statement about him. Other protected interests include freedom of movement, protected by the intentional tort of false imprisonment.
The equivalent of tort in civil law jurisdictions is delict. The law of torts can be categorised as part of the law of obligations, but unlike voluntarily assumed obligations (such as those of contract, or trust), the duties imposed by the law of torts apply to all those subject to the relevant jurisdiction. To behave in 'tortious' manner is to harm another's body, property, or legal rights, or possibly, to breach a duty owed under statute. One who commits a tortious act is called a tortfeasor. Torts is one of the American Bar Association mandatory first year law school courses.
The skinny on getting cash for a structured settlement payment?
Very often, individuals who receive a structured settlement do not wish to wait for years to obtain the cash and would rather have it all in one go. Settlement purchasing companies help people to get cash instantly; the cash can be obtained at any stage of the execution of the structured settlement. A person who receives the lump sum is free to use it any way he desires - for education, home, or car.
It is not uncommon for a recipient of a structured settlement to run into a financial difficulty or come across an investment opportunity that promises better returns than a structured settlement. At such times, individuals consider getting cash for their structured settlement and use the money to build their own portfolio of investments. An advantage of getting lump sum cash is that it acts as a hedge against inflation.
Companies that purchase annuities do so at a discounted rate, at the very minimum, the discount is equal to the existing bank rates. Sometimes, purchasers may require a higher discount in order to cover the risk involved and make a profit. One should ideally take the help of a financial advisor who can professionally assess an individual's income, assets, and monetary obligations. This helps to put into perspective future security as assured by a structured settlement against a lump sum payment.
Companies that purchase structured settlements offer to do so in a number of ways so that an individual can sell different amounts of an annuity. The flexible plans can be tailored according to an individual's requirements; this allows one to enjoy both a lump sum at hand for immediate needs and regular payments from the annuity. The course of action to be taken while selling a structured settlement depends upon the immediate needs that could include paying off debts, child's college fees, debt consolidation, or a business venture. Cash for structured settlements can be obtained as a full payment, partial payment, or a shared payment.
A full payment involves receipt of a lump sum for the entire annuity. It is an option when high debts have to be repaid. While selling an annuity that is due well into the future, one should be careful because they do not result in as much money as those annuities that are due sooner. This is because the value of money depreciates due to inflation.
Partial payments can be useful if a limited amount of money is required for consolidating debts or repaying a loan. A given number of payments can be sold off for a lump sum in a partial payment. With a shared payment, one can sell of a portion of a lump sum that is due in a short time. A shared payment enables one to pay off expenses that are going to be incurred in the near future; these may include education fees or the cost of a new vehicle.
Individuals who intend to obtain cash for their structured settlements should obtain the necessary court approvals for the purpose. One should ensure that the transaction complies with state and federal restrictions. Before deciding upon a buyer, one should research a few companies and look out for the best deal possible. It is also important to check the credentials of a prospective purchaser.
How to sell a structured settlement payment?
Individuals who choose to sell their structured settlement either in part or wholly are in need of some ready money. Most often, people sell a part of their structured settlement to meet near-term requirements. There are various institutions that buy structured settlements. The transactions can vary in amount from ten thousand dollars to 1.5 million dollars. More than two-thirds of the states in the United States allow individuals to sell structured settlements. According to the federal law HR 2884, annuity owners do not come under any tax obligations as a result of selling their structured settlements.
One should research about various settlement purchasers, check their past payment records and their working relationships with the insurance companies so that the transactions can be approved quickly. Also, the purchasers should be licensed, insured, and bonded. This way if a purchaser goes out of business, the seller can still get his cash. In some states it is mandatory to obtain financial and tax advice, in other states an annuity seller needs to sign a waiver if he does not want to take recourse to financial advice. However, it is compulsory to take advance approval from court according to federal and state laws. Companies that purchase a settlement payout without the advance court approval face a heavy tax.
A judge studies the circumstance of the potential transactions to assess whether the seller actually stands to benefit from the transaction and weighs the effect of the transaction upon the seller's dependents. Often, owners of structured settlement payments cannot raise credit by other means and have to sell off parts of their settlements. The judges are aware of this and do not object to the transactions so long as the owner is able to show a genuine need for the sale. The seller's presence in court makes it easier for the judge to arrive at a decision. In an instance where a transaction is denied by a judge, purchasing companies take the necessary steps to create the conditions suitable for the transaction, a seller does not have to bear the costs of this process.
To obtain a free quote from a purchaser, one needs to provide information such as the state of residence, the insurance company, and the payments. If an individual is satisfied with the quote offered, he will need to submit copies of the settlement agreement and annuity policy.
The process of finalizing the contract starts with the purchasing firm sending a disclosure document to the seller; the document explains the terms and conditions that will govern the transaction. The contact is dispatched in a day or two, upon the contract being signed; the court order process begins and can take up to 90 days depending upon the state of residence and the insurance firm. Funds are made available to the individual within five to ten working days of the order being approved.
Why does a company want to buy my structured settlement?
Structured settlement companies that buy a structured settlement do so at a profit. The amount of lump sum received by an individual selling either a part or the complete settlement is not the same as the value of the structured settlements sold.
The money they earn is invested by these companies as per the best option available in their investment portfolios at that point in time. The profits are used to run the company, pay employees, and advertise. A financially healthy structured settlement company is a safer option for an individual as there is less chance of the company going bankrupt. Also, the market standing of such a company would allow it to offer the best rates to their clients, use their own money to pay the clients without having to take loans from a bank or take the services of a middleman. If they do take the services of a broker or a middleman, they will have to factor in the broker's charges which are ultimately paid by the structured settlement owner.
Companies are attracted toward structured settlements because it guarantees a safe cash flow and the transaction is not taxable. There are always individuals in need of quick cash who would like to swap their structured settlements for some quick cash. The work involved in purchasing a structured settlement is not much, the main effort lies in marketing and obtaining court approval in compliance with the prevalent state and federal laws.
The fact that structured settlements are guaranteed means that structured settlement companies can obtain debt at low interest rates and finance other ventures with that debt. For example, if a structured settlement company pays a lump sum of $200, 000, a pre-tax rate of return of 10% for a 20-year period would get $23,492 every year.
Is selling a structured settlement a good investment decision?
In nine cases out of ten, selling a structured settlement is not a good investment decision. Ideally, selling a structured settlement for cash should be the last alternative and should be resorted to only if the individual is confident of managing his own investment portfolio in a competent manner. This is because in any sale of a structured settlement, it is possible to lose up to half of the long-term value of the structured settlement.
A structured settlement offers guaranteed payment that is tax-free; this may not be the case with investments made by selling a structured settlement. Moreover, the regular payments offered by a structured settlement are a source of great comfort to retired individuals and those with an impaired earning ability. A structured settlement offers the advantage of a regular income without having to worry about managing it.
If one has sufficient business experience and is confident of himself, he can use the money obtained from the sale of a structured settlement as capital, and the money can also be used to make intelligent real estate purchases. In case, an individual has to sell his structured settlement, he should try and sell as few payments as would be required to get his work done. Exchanging the security of structured settlement payments for another investment plan has its risks and one should consider alternatives in collaboration with a financial advisor. An advantage of investing money obtained from selling a structured settlement is that one gains control of his own finances; with a structured settlement, the control is largely in the hands of lawyers and companies that pay the settlements.
Selling structured settlements can be particularly detrimental to individuals who are disabled, minors, workers compensated for loss, and compensation due to severe injury.
How a structured settlement annuity works?
A Structured Settlement is essentially an agreement under which an insurance company agrees to pay an individual a predetermined amount of cash for a fixed length of time if the individual meets an accident. The documents generated in a structured settlement include an agreement, a qualified assignment, an annuity application, a court order if a claim is made by a minor, and an annuity policy.
Payments for a structured settlement annuity can be made for the duration of the life of the claimant. The amount paid can comprise of equal installments, installments of varying amounts, and lump sums. The payments from a Structured Settlement Annuity are free from income-tax and are guaranteed by contract. Since a structured settlement annuity is meant for long-term financial security, it is important to get an assurance of the credentials of the annuity provider.
The periodicity of payment is entered into the settlement agreement. Factors that individuals can consider in deciding upon the date of commencement of payment, duration, and periodicity include monthly expenses, present age, extent of hazard in occupation, and retirement plans. In order to ensure that the payments remain tax-free, the structure of payments should not be altered once it has been agreed upon by both parties. In the case of a qualified assignment, the insurance company making the payment can transfer its obligation for payments to a third party.
There are issues that one should understand before opting for a structured settlement agreement. If payments are made to an estate, they are free from income tax but subject to estate tax. Purchasing a structured annuity can affect the availability of ready money with an individual.
State and federal laws govern the closing of a structured settlement. The closing process usually gets completed in 3-6 months. Federal laws stipulate that a court order be obtained by either the customer or the funding company that is purchasing the payment stream so that there are no tax liabilities. The manner in which the court order is obtained is regulated by various "Structured Settlement Protection Acts", which are in force in 36 states in the United States.
A disclosure statement is made available to a customer 3 to 14 days before he receives the transfer agreement. The disclosure statement mentions the amounts to be paid to the customer and their due dates; the IRS Discounted Present Value of the amount at that given point in time; the Gross Advance Amount and the Annual Discount Rate; disclosures desired by the state; and a list of the fees and commissions incurred.
It is advisable to avail attorney advice before going in for a. In fact, in some states, it is a precondition to acquiring a structured settlement annuity. However, depending upon the laws being used for the transaction, customers do have the option of waiving legal representation in the Transfer Agreement or obtain an Estoppel letter from their attorney.
The funding company commences payment to an individual after acknowledging the assignment and receiving a court order. The payments start 30-45 days after the receipt of the court order.
Why a structured settlement payment is a popular choice?
Structured settlements offer several advantages that make them a popular choice with individuals. The foremost benefit of a structured settlement is that it provides cash at regular intervals and the money is free of state as well as federal taxes. As against this, the interest accrued from investments made from money obtained through a lump sum is subject to federal and state tax. Also, very often individuals who come into money by acquiring a lump sum are unable to invest it wisely and often spend it wastefully, this is not possible with a structured settlement where small amounts are made available periodically and therefore a person's spending is regulated.
Loss of money that has been acquired through an installment of a structured settlement is not as severe as loss of money acquired through a lump sum payment. The small amounts are easy to manage and also do not excite the interest of unscrupulous elements as compared to hefty lump sum payments.
With a structured settlement, an individual does not need to worry about planning for long-term investments as the periodic payments can be structured to take adequate care of one's needs post retirement or in the case of a debilitating injury. Structured settlements are favored by both the defendant and the plaintiff as they can be settled without having to go to court. This saves time and is often cheaper for the defendant who would otherwise have to pay more with an in-court settlement. The risks involved for both parties are reduced with a structured settlement as per which the defendant is contractually bound to pay the plaintiff. Also, attorney costs for a out-of-court negotiated structured settlement are lower than what they would be if a litigation were to be filed in court. Attorney fees can come down by as much as 8% to 10% for a structured settlement achieved out of court. This can mean a saving of thousands of dollars for the defendant as structured settlements can often run into more than a million dollars.
Structured settlements allow insurance companies to provide payment to claimants at a lower cost and the payment schedule can be set according to a claimant's convenience. A structured settlement can be used to provide for certain costs of an individual right from the stage when he is a minor. The money can be disbursed for college expenses or to meet the costs of higher education. Periodic lump sums made available to an injured person can be used to make medicinal purchases and sustain oneself.
One reason for the popularity of structured settlements is that they can be availed in a variety of formats; these include lump sum payments made periodically when funds are required for medical expenses, education, or marriage; percentage increase annuities that offer annually increasing payments that help to counter inflation; deferred annuities that enable to defer the commencement of payment to a later date; period certain annuities that can be combined with a lump sum payment for receiving payment over a fixed period; and joint and survivor annuities in which payments are continued to the survivor annuitant if the primary annuitant passes away.
Do I really need a structured settlement company?
Structured settlements are offered by individuals or companies when they wish for an out-of-court settlement for an issue. Structured settlement companies offer their services for managing the payouts for an individual. The payouts can be of substantial amount and can last for several years.
Structured settlement companies can help individuals by helping the processing of settlement claims in an efficient manner. Structured settlement companies focus on reducing litigation costs thereby saving the defendant valuable money that can be used to pay the beneficiary. An individual who gets a structured settlement payment also stands to benefit by taking the service of a structured settlement company if he wishes to convert his structured settlement payments into ready cash. Structured settlement companies have contacts with investors who pay a person for his cash flow.
A person who wishes to transfer his payments to another person can do so with the help of a structured settlement company. The terms of a settlement are governed by state and federal laws and need to be understood properly before a settlement can be executed. Creating a Structured Settlement Agreement and obtaining a court approval for a structured settlement transaction are some of the activities that the settlement companies manage. Their good working relationships with insurance companies and their knowledge of laws that govern settlements mean that the beneficiary of a structured settlement gets through the procedures smoothly.
With the presence of a structured settlement company as a third party between a defendant and a beneficiary, the beneficiary can avail the settlement sum in a variety of ways depending upon his present financial conditions and lifestyle. Settlements can also be offered through an equity annuity which enables the beneficiary to invest the money obtained and earn either through a guaranteed minimum or according to the stock market. Thus, settlement companies that offer an equity annuity give people a chance to reap payoffs on the principal and at the same time watch it grow.
An individual involved in litigation needs help in filing a claim, managing documents, and assessing present and future damages. Along with a competent lawyer, he is helped in this by a structured settlement company that can gauge an individual's future requirements and advise upon a settlement amount as well as the periodicity of payment. Their services are all the more useful in cases that involve catastrophic accidents that can lead to a loss of earning capability and in some cases reduced life expectancy. The companies use their expertise to draft a payment proposal that raises the issue of the plaintiff's requirements and the defendant's responsibility to the plaintiff's needs.
An individual who receives a large cash award, whether from an out-of-court settlement, a lottery ticket, or a sweepstake award stands to benefit immensely by taking the services of a structured settlement company that can help him manage his finance better.
Which structured settlement broker is right for me?
Often, in the case of a structured settlement, neither the beneficiary nor the defendant has a clear idea of the costs involved in the settlement. A structured settlement broker can help the parties involved to get a fair assessment of the costs based on calculations and projections. A broker provides information that acts as a platform for conducting negotiations.
The right structured settlement broker will execute several responsibilities such as a financial analysis for the plaintiff, derive the present value cost based on that analysis, interact with Medicaid and SSI if required, mediate during negotiations, and offer tax-planning advice to the plaintiff. A broker works with the plaintiff or his attorney and negotiates a suitable agreement. Alternately, the broker can be the middleman when an individual decides to sell a structured settlement.
Ideally, a broker should help an attorney in the negotiation process and provide financial inputs relevant to the fiduciary position that they enjoy. This helps the attorney to create a scenario that takes into consideration things such as medical expenses, present income, loss of wages, and debt. The broker is involved during the negotiation and in the post-negotiation process. It is not often that attorneys are experts in structured settlements and they have to take recourse to the services of a broker. Their combined knowledge is critical for building a powerful case for the plaintiff.
A structured settlement broker provides various payment options and explains the salient features of each to the plaintiff. With inputs from the broker and the attorney, a person can take a call on the most suitable payment structure for him. The services of a knowledgeable structured settlement broker are in demand because of the nature of a structured settlement; it cannot be renegotiated.
One should research structured settlement brokers before availing the services of any of them. Ideally, the broker should be registered with the Department of Justice, have a registration in at least one state in America and at the minimum with one insurance company. The broker should be insured against errors and omissions. A broker who fulfills the above criteria is going to be one with the required experience and a clean track record so that the individual can trust him with sensitive information. One should also shop around a little and look out for brokers who can do the job at low commission rates.
While selling a structured settlement, it is important to ensure that a broker does not have any kind of exclusive arrangement with a buyer as this may lead to a poor deal for a seller. Brokers normally have access to several buyers and can obtain quotes from them on the seller's behalf. This helps the seller to get the best deal possible for his structured settlement. The brokers can arrange for the sale of a structured settlement in a manner convenient to the seller; one can make a part sale of the settlement or opt for a lump sum in exchange for the entire structured settlement.
Which structured settlement broker is right for me?
Often, in the case of a structured settlement, neither the beneficiary nor the defendant has a clear idea of the costs involved in the settlement. A structured settlement broker can help the parties involved to get a fair assessment of the costs based on calculations and projections. A broker provides information that acts as a platform for conducting negotiations.
The right structured settlement broker will execute several responsibilities such as a financial analysis for the plaintiff, derive the present value cost based on that analysis, interact with Medicaid and SSI if required, mediate during negotiations, and offer tax-planning advice to the plaintiff. A broker works with the plaintiff or his attorney and negotiates a suitable agreement. Alternately, the broker can be the middleman when an individual decides to sell a structured settlement.
Ideally, a broker should help an attorney in the negotiation process and provide financial inputs relevant to the fiduciary position that they enjoy. This helps the attorney to create a scenario that takes into consideration things such as medical expenses, present income, loss of wages, and debt. The broker is involved during the negotiation and in the post-negotiation process. It is not often that attorneys are experts in structured settlements and they have to take recourse to the services of a broker. Their combined knowledge is critical for building a powerful case for the plaintiff.
A structured settlement broker provides various payment options and explains the salient features of each to the plaintiff. With inputs from the broker and the attorney, a person can take a call on the most suitable payment structure for him. The services of a knowledgeable structured settlement broker are in demand because of the nature of a structured settlement; it cannot be renegotiated.
One should research structured settlement brokers before availing the services of any of them. Ideally, the broker should be registered with the Department of Justice, have a registration in at least one state in America and at the minimum with one insurance company. The broker should be insured against errors and omissions. A broker who fulfills the above criteria is going to be one with the required experience and a clean track record so that the individual can trust him with sensitive information. One should also shop around a little and look out for brokers who can do the job at low commission rates.
While selling a structured settlement, it is important to ensure that a broker does not have any kind of exclusive arrangement with a buyer as this may lead to a poor deal for a seller. Brokers normally have access to several buyers and can obtain quotes from them on the seller's behalf. This helps the seller to get the best deal possible for his structured settlement. The brokers can arrange for the sale of a structured settlement in a manner convenient to the seller; one can make a part sale of the settlement or opt for a lump sum in exchange for the entire structured settlement.
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