Have you heard about structured settlements but never understood what that meant? If so, you’re not alone.
It’s a term you might hear on a television commercial about filing an injury or workers’ compensation claim. If you win a lawsuit, receiving a large, lump-sum settlement might seem like a good idea to get all of your money upfront. However, the tax implications of a large amount of money could be an overwhelming expense that puts a dent in the amount you take home from a settlement.
What is a structured settlement? Keep reading to learn more about this payout option.
How Does It Work?
When a plaintiff wins a lawsuit, they sometimes have the option of a structured settlement payout. With this type of payment plan, the plaintiff receives regular payment installments that eventually add up to the total settlement amount.
In most cases, the at-fault party puts the settlement funds into an annuity. The annuity company then makes the structured payments to the plaintiff, who won the lawsuit and settlement. Learn more about how annuities work from Rightway Funding reviews.
Why Are Structures Settlements a Good Idea?
Before Congress passed the Periodic Payment Settlement Act in the 1980s, the losing party in a lawsuit could face the burden of a substantial lump-sum payment to the injured party. If they couldn’t come up with the full settlement amount, the winning plaintiff might never see their payday.
If they did receive the payment, it also came with a hefty tax price tag. Without the option of a payment plan, the winning party could lose a significant amount of money when it was time to pay the taxes on the settlement amount.
With structured settlements, both parties win—even though one party technically loses in court. The losing party pays into an annuity over time, rather than putting out a large amount of money or defaulting on a payment they can’t afford. The annuity pays the winning party in smaller installments over time, easing the tax burden.
In many cases, the smaller installments are tax-free payments to the settlement winner. Structured injury settlements also provide steady, long-term income that’s easier to manage when suffering from an injury that leaves the winning party unable to work.
Structures Can Vary
Settlement payouts can vary based on the terms of a case and your needs. When structuring the payouts, plaintiffs can choose from:
- A sizeable initial payment followed by smaller installments
- Gradually increasing or decreasing payments over time
- “Extra” payments to cover specific expenses
- Delayed payments (if they plaintiff doesn’t need it right away)
When winning a structured settlement, work with a trusted lawyer to help you set the appropriate payout terms.
What Is a Structured Settlement? A Winning Payout!
What is a structured settlement? It’s a winning way to benefit from a lawsuit settlement. Choosing smaller payments over time means you pay less in taxes and enjoy long-term financial support after winning an injury lawsuit.
Was this information helpful? Be sure to check out more of our articles!