Structured Settlements

SolutionNo two individuals have the same hopes and dreams. The professionals at Plaintiff Settlement Solutions, Inc. can help design a strategy to help anyone and their families achieve their goals. Our customized plans will work to meet any and all immediate financial and medical needs as well as address long range goals like home purchases, children's education, and retirement income.

Working together with the plaintiff and the plaintiff's attorney, our specialists will develop a strategic financial plan to provide solutions for all of the difficult financial decisions that must be faced. A skillfully structured settlement has several built in advantages that give it more impact than a lump sum payment.

Guaranteed Financial GrowthA structured settlement annuity will guarantee periodic payments over a lifetime or over a specific period of time. Also known as "period certain." An annuity is an investment vehicle in which the plaintiff allows all or part of the award or settlement to be placed with an insurance company. In return, the insurance company guarantees inflation adjusted periodic payments for life or period certain.

Spendthrift ProtectionStructured settlements help to prevent plaintiffs from mindlessly blowing the settlement proceeds. Due to the difficulty of self-managing a cash settlement, 92% of all claimants exhaust their funds completely within the first five years.

Tax Free IncomeInternal Revenue Service Code Section 104(a)2 provides for periodic payments (i.e., a structured settlement) in personal physical injury and workers' compensation cases to be income tax free to the plaintiff. This means the amount of the award or settlement is tax free, but more importantly, so are all future periodic payments and lump sums.

No Cost SolutionBy accepting a structured settlement, one is guaranteed a sustained, reliable source of income without any fees or expenses from an investment broker.

FlexibilityA structured settlement can be tailored to provide future payments in just about every size, frequency and duration imaginable. Although one is ultimately limited by the amount he or she has to structure, the way in which it can be structured is almost limitless. This type of flexibility helps meet the needs of the individual yet still provides security for their family.

Protection for MinorsTo ensure that the money does not fall into the wrong hands and more importantly is available when it is needed most, the courts will usually require a structured settlement of any minor's award or settlement.

• What is a structured settlement?

  • Structured settlements are an optional method for families to accept compensation in wrongful death and physical injury cases. Under structured settlement, you and your family receive a stream of guaranteed payments tailored to you specific needs. Structured settlements are completely voluntary and have gained support among a wide range of consumer and victims' advocates.

• Why choose a structured settlement?

  • In today's uncertain financial climate, a structured settlement offers peace of mind. Your structured settlement provinces a stream of payments specifically tailored to your personal and family needs. You don't have to worry about the responsibilities and risks of managing a lump sum settlement to meet the needs of a lifetime. The payments come from a financially secure source. Federal law regulates how structured settlements are established.

• What are the federal laws that govern structured settlements?

  • The Periodic Payment Settlement Act of 1982 explicitly encourages the user of structured settlements. In 1997, after 15 years of success with structured settlement, Congress approved legislation to promote structured settlements for workers compensation cases. And in 2002, President Bush signed legislation containing important consumer protections that further benefit structured settlement recipients.

• How are payments "guaranteed"?

  • Your structured settlement payments are funded by either U.S. Treasury obligations or a life insurance company annuity - two of the safest funding sources available.

• Do structured settlements offer a solid financial return?

  • Yes. Under current law, structured settlement payments are completely free from federal and state income taxes. Congress created this significant financial advantage 20 years ago to give beneficiaries a strong incentive to choose a structured settlement.

• How significant are the financial benefits of a structured settlement?

  • This chart shows the tremendous advantages of a structured settlement over a one-time payout. Compare the returns on two hypothetical $100,000 settlements. One is invested in conventional taxable investments at an interest rate of 6%. The other flows through a structured settlement earning the same rate.
    

    After 20 years, the total net income generated by the lump sum settlement is $158,991. By contrast, the total net payout generated by the structured settlement is $213,994 - a 35% increase.

• Could future events change my payment?

  • Structured settlements funded with U.S. Treasuries or fixed annuity contracts are guaranteed not to change, no matter what happens with interest rates or the stock market. These payments are a secure source of income that can also incorporate cost-of-living adjustments, stepped payment increases and future lump sums for additional flexibility.

• Why are structured settlements used so often in catastrophic cases?

  • In catastrophic injury and death cases, loses can be enormous and long term. A severely injured child, for example, might need lengthy rehabilitation. The accidental death of a spouse might mean a family goes without income and employer-paid healthcare for years. Given most families' expensive long-term liabilities in these cases, there is little or no margin for financial error after a lawsuit settlement. That's why tax-free structured settlements are so popular. Backed by rough federal and state regulations that provides a high standard of financial security, these settlements allow family members to concentrated on other life needs.

• But are structured settlements really appropriate for cases involving long-term damages?

  • The proof of structured settlements' value is best shown by what plaintiffs themselves choose when settling catastrophic cases. Insurance statistics show that a structured settlement is more than four times as likely to be used to settle a claim greater than $1 million than it is for claims under $100,000. And an independent survey of injury and wrongful death settlements concluded, "The average payment in claims involving structured settlements... was more than 59 percent greater than the average payment for claims paid in a single lump-sum." Since that survey, annual production for structured settlements has risen more than 50 percent, to approximately $6 billion a year. So clearly, plaintiffs in large claim cases are taking advantage of the opportunity to structure their settlements.

• My lawyer tells me that catastrophic cases often take a long time to settle. Can a structured settlement help?

  • Yes. In addition to their tax-free advantages, structured settlements can speed up resolution of catastrophic cases. During pre-trial negotiation, you and your attorney can create a sample structured settlement payment stream to meet your basic needs. This should include your living expenses as well as ongoing medical costs (for example, wheelchair replacement and rehabilitation). You can also include future payments for such expenses as college education. This focus on your losses and needs has been shown to push cases toward resolution without putting you through the emotional strain of a trial.

• Why not just put the lump sum settlement in investments such as stocks and bonds that provide regular dividends?

  • First, by federal law, your structured settlement payments are free from federal and state income taxes. Investments in stocks and bonds are subject to taxation, meaning you'll have to earn a much higher return just to take home the same amount. Second, with a structured settlement, your money is guaranteed to arrive on time and in full. World events or financial disasters will not impact your payments! You have no similar security with stocks and bonds.

• A family member was hurt in a catastrophic injury and faces years of expensive therapy. What kind of guarantees does a structured settlement offer?

  • YWith a structured settlement, you may choose payments guaranteed for the life of the family member. This is important because medical advances are making accurate life expectancy predictions increasingly difficult (see chart). By contrast, if you take a lump sum, there's no guarantee of lifetime payments, which may present a serious financial problem if that family member lives longer than expected. In that case, you may have no choice but to pay for treatment yourself, which may be a significant drain on your life savings.

• Life Expectancy: Tougher to predict than you think

  • Life expectancy estimates after a catastrophic injury can be extremely difficult and ongoing advances in medical science are a likely to make accurate predictions even more uncertain. So if an injury victim outlives a lawsuit settlement, family or dependents may end up paying for the victim's medical and living expenses out of their own pockets.
    

• My child has been in an accident. What options do I have for the financial settlement?

  • For all but small accidents, you typically have three choices. First, the settlement can be held by the court in a low-interest account until your child reaches legal maturity, usually age 18 or 19. The money is then released to your child. A second option is to place the settlement in a trust managed by a bank or investment consultant. But this may have drawbacks because all the investment income is subject to taxes. There are also likely to be ongoing management fees. A far better option is to create a structured settlement. Recognized by federal law since 1983, a structured settlement allows you and your attorney to design a stream of tax-free payments tailored to your child's specific needs. Structured settlements are completely voluntary and have the support of numerous organizations that advocate for children and persons with disabilities.

• My biggest concern is people taking financial advantage of my child. Which option provides the most protection?

  • Without a doubt, a structured settlement is the safest, most secure option for your child. First, your child's settlement will be backed by top-rated life insurance annuities or U.S. Treasuries - two of the safest investments available. Second, there is no need to worry about investment risks. Third, you have the flexibility to schedule payments well after your child reaches legal maturity. This way, your child will not receive a large lump sum while still young and inexperienced with managing money. Trusts and court registries do not provide any of these protections.

• What advantages does a structured settlement have over a trust?

  • First, there's security. Even with an experienced trustee, a trust can be hit with losses due to general market drops and bad investments. In contrast, a structured settlement provides a guaranteed stream of payments. Structured settlements are also exempt from state and federal income taxes, while trusts are taxed at a rate equal to or higher than regular individual income taxes. Finally, trusts often require annual management feeds, which further reduce the overall return. Under a structured settlement, there are no management or other feeds.

• Does it cost a lot to set up a structured settlement?

  • Structured settlements are one of the lowest cost money management options available. By comparison, a trust can cost thousands of dollars to establish, plus additional feeds every year for taxes, tax preparation, and management.

• My child will require care long after he becomes an adult. Can a structured settlement meet this need?

  • Absolutely. A structured settlement allows you and your attorney to establish a payment stream designed for your child's specific needs - and these payments may continue long after your child becomes an adult. The payments may be in equal amounts or may include occasional lump sums for things like college tuition. Your structure's tax-free payments can be guaranteed for a certain number of years or even for your child's entire life, so that he or she never outlives this income. There is no similar guarantee with a trust.

• You mentioned college tuition. How does a structured settlement compare with a 529 plan?

  • Structured settlements and 529 plans both provide tax-free growth. However structured settlements are free from many of the 529 plan's drawbacks. Most notably, payments from a structured settlement are guaranteed, while 529 payments are not. Structured settlements are also far more flexible: Your payments can fund private tutoring, post-graduate study or trade school tuition. 529 plans will not pay for any of these.

• Since this case involves a minor, I need court approval. How should that impact my decision?

  • A structured settlement is one of the best ways to gain speedy court approval. Structured settlements enjoy significant popularity among judges because of their proven ability to protect minors.

• If I take a structured settlement, will I be required to report back to the court?

  • Courts almost never require reporting when you choose a structured settlement because the payment stream has already been agreed to and will not change. By contrast, if you use a trust or a court account, you will typically need to submit regular reports, detailing income and expenditures, and explaining why the expenditures were in your child's interests.

• What if my child's financial needs suddenly change several years after the settlement?

  • A 2002 federal law recognizes that when your child becomes an adult, his or her future needs might change. In cases of extraordinary need, the law allows your child to sell future payments. However, to ensure your child receives a fair deal, the law requires that a court certify any sale, no matter how small, as truly in your child's best interests. Many of the nation's leading consumer and disability activists supported this law.

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