A structured settlement is a financial agreement that compensates an individual or company. Two parties usually enter it, such as the plaintiff in a lawsuit and the defendant. Both agree to resolve their dispute through structured payments over an extended period. A structured settlement can provide many benefits for both parties, including tax advantages and the ability to create a plan for the future. Are you considering a structured settlement? If so, you’ll want to ensure you understand the different types of structured settlements and their advantages.
Structured settlements can provide a stable and secure income for those awarded a legal settlement. This article will discuss the benefits of structured settlements.
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What is a Structured Settlement?
A structured settlement is an agreement between a plaintiff and a defendant in which the plaintiff agrees to accept periodic payments instead of a lump sum to release the defendant from future liability. Structured settlements are often used in the following ways:
- Personal injury cases
- Workers’ compensation
- Medical malpractice
- Other legal cases.
Suppose you are involved in a legal case where a settlement is possible. In that case, it is important to consult with an experienced attorney to discuss whether a structured settlement makes sense for you.
Types of Structured Settlement Funds
The different types of structured settlements are usually categorized based on how the funds are invested. Three main types are fixed-term annuity funds, mutual fund accounts, and lump sum payments. Each type offers unique advantages depending on one’s circumstances and desired outcome.
- Fixed-term annuity funds are invested in an insurance policy with guaranteed returns over a predetermined amount of years.
- Mutual fund accounts invest in stocks, bonds, and other securities that can yield higher returns but are also subject to market fluctuation, making them riskier investments.
- Finally, lump sum payments offer recipients one-time lump sums. This is opposed to monthly or annual payments that must be managed carefully by the recipient after receiving them.
5 Benefits of Structured Settlement
If you receive a personal injury lawsuit, you may wonder about your options for receiving your settlement. Structured settlements offer many benefits over traditional lump-sum payouts and can be tailored to meet your unique needs. Here are some of the top benefits of a structured settlement:
1. Set Payment Amounts
Structured settlements can provide the security of knowing exactly how much money you will have each month. It also affords you the ability to plan your finances accordingly. This can be especially beneficial if you’re unsure when or where your next paycheck will come from or if you don’t have a steady income source. With a structured settlement, you can receive your compensation in periodic payments rather than in one lump sum. This can give you greater financial stability and peace of mind. You know you will have a regular source of income coming in.
2. Tax Advantages
Another great benefit of structured settlements is that the payments are typically tax-free. Depending on the payment arrangement chosen, structured settlement payments may be tax-free or taxed at a lower rate than other types of income, such as interest from investments or wages from employment. That means more money goes to YOU rather than being taken out.
3. Long-Term Financial Security
When you receive a lump-sum payout from a personal injury lawsuit, you must manage that money wisely. With a structured settlement, however, the funds are managed by a professional company specializing in this type. This can give you more peace of mind that your money is being handled properly. Structured settlements come with the option of setting up a trust account that pays out over time. This allows you to secure a steady income for an extended period without worrying about unexpected fluctuations in your financial situation due to economic conditions or other events beyond your control.
4. Interest Accumulation
Structured settlements can also include provisions for earning interest on the funds over time. It can help increase the number of funds available when needed most down the line, such as when additional medical expenses may arise unexpectedly or to provide some extra cushion in tough times. Many structured settlement payment plans also include access to professional money management assistance.
5. You Can Pass on The Payments to Future Generations
Finally, structured settlements can be set up, so your heirs can pass the payments down. This can be an awesome way to provide for your loved ones after you’re gone.
Steps to Get Started With a Structured Settlement
Suppose you have been awarded a settlement and are now considering how to utilize it. Structured settlements offer several advantages that make them more appealing than other financing options. Here are steps to get started with a structured settlement.
- Understand Settlement: The first step in getting started with a structured settlement is understanding what it is. A structured settlement is an agreement between two parties involved in a lawsuit where one party agrees to pay the other a set amount of money over an agreed-upon period. The payments may be monthly, quarterly, or annually and can occur for several years or decades.
- Assess Your Options: The second step is to assess all the options available to you regarding your settlement funds. It would help if you considered which financial arrangement makes the most sense for your needs and goals to ensure your money is being used efficiently.
- Seeking Professional Advice: When deciding which option would be best for your situation, it’s important to seek professional advice from an experienced financial advisor or lawyer. They can provide expert counsel on which choice would make the most sense for your future goals and circumstances.
- Consult With An Expert: When considering a structured settlement, it’s important to consult with an expert specializing in these agreements. They can help explain all the benefits and drawbacks of entering into one of these arrangements. In addition, they can let you decide whether this option is best suited for you and your family.
Structured settlements offer a variety of benefits for the recipient. By receiving steady payments over an extended period, structured settlements provide financial security and peace of mind that may not be accessible through traditional lump sum options. Additionally, they are tax-free, can be customized to meet individual needs, and carry no risk of outliving funds as an insurance company guarantees them. With all these advantages in mind, it is clear why structured settlements have become so popular with individuals seeking long-term financial stability.