When the defendant and plaintiff agree to resolve a lawsuit with a structured agreement, the parties negotiate a cash amount payable by the defendant in exchange for the plaintiff to withdraw the lawsuit. The money is distributed as a series of periodic payments, usually financed through an annuity. Courts use structured settlements in many different types of cases to replace or supplement income that was lost through someone else's fault. Because they are carried out by a third party, it also means that someone does not need to systematically associate with the person or entity that hurt them.
With a structured settlement, you have much less money in the bank and, therefore, a much lower tax liability. As long as you consider these issues before signing a settlement agreement in your case, you can structure as much or as little as you like and take the rest in cash. Good news about structured settlements is that they provide integrated investment management. Some municipalities even have stricter regulations and are generally in areas where there is a larger population at risk with structured settlements.
The plaintiff can settle the matter for a lump sum and future payments and assign a certain amount of the settlement proceeds to a structured settlement trust. The decision to use a structured settlement must be made before finalizing the settlement agreement. Most structured settlements stem from personal injury, wrongful death, or workers' compensation claims. The defendant or insurer then pays the settlement funds to a third-party assignment company, which assumes responsibility and purchases an annuity from a structured settlement insurance company.
Instead of paying the cash to you or your lawyer, the defendant will send the money for the structure to a subsidiary of the life insurance company called the cession company. Therefore, structured agreements were used more to ensure that money was withheld and used for child care as prescribed by the court. A sound public policy in favor of deterring plaintiffs from squandering their settlements or awards has led to favorable tax rules for structured settlements. The choice is ultimately up to the plaintiff, and many consider a structured settlement to be much more beneficial than a lump-sum cash payment.
Federal law, as well as additional regulations in 48 states, require court approval to transfer structured settlement payments. By 1985, the National Structured Settlement Trading Association was formed to preserve and promote structured settlements for injury plaintiffs through education. If you are interested in selling your annuity or structured settlement payments, a representative will provide you with a free, no-obligation quote.