A structured settlement is a regular flow of tax-free payments that are granted to the plaintiff in a civil lawsuit. Structured settlements are intended to provide long-term financial security for the injured party. If the amount of money is small enough, the injured party may have the option of receiving a lump-sum settlement. The process of issuing a structured settlement is complicated and results in a simpler and easier solution for someone who wins a case.
What is a structured settlement annuity? A structured settlement is defined as a derivative and negotiated agreement of a person or company that wins a civil case. A settlement generally includes a lump sum of cash upfront (cash advance), once, to cover immediate expenses, followed by guaranteed, tax-free, periodic payments customized to meet the needs of the settlement winner. At the same time, companies that purchase structured settlements are known to take advantage of beneficiaries' circumstances to obtain settlements for a relatively small price. In the United States, structured settlement laws and regulations have been enacted at both the federal and state levels.
However, a structured settlement buyer should be able to help you along the way with whatever documentation you need and how to file it correctly. A structured settlement is when part or all of the settlement amount is paid to the plaintiff over a period of years. People who need quick access to funds fixed in a structured settlement turn to buying companies to buy their future payments in exchange for a lump sum. And if the settlement just isn't that big, you won't get a significant advantage from a structured settlement.
Thanks to the Periodic Payment Settlement Act of 1982, many annuities issued as part of a structured settlement agreement, defined by the IRS as “qualifying financing assets,” are exempt from income taxes. In the Taxpayer Assistance Act of 1997, Congress extended structured agreements to workers' compensation to cover physical injuries sustained in the workplace. With a structured settlement, you have much less money in the bank and, therefore, a much lower tax liability. Additional investment options are available to claimants who are not interested in a structured settlement annuity.
They may want to get funds from the structured agreement to pay off debt, help pay for a house, help pay for a child's college tuition, or other important financial needs. Courts use structured settlements in many different types of cases to replace or supplement income that was lost through someone else's fault. The Federal Periodic Payment Settlement Act of 1982 made court approval mandatory for all sales of structured settlements to ensure that the best interest of the consumer comes first and limit any party from taking advantage of the receiver of the settlement. The process of resolving a civil case through a structured settlement involves the person who has been aggrieved (the plaintiff), the person or company that caused the damage (the defendant), a consultant with experience in such cases (a qualified assignee), and a life insurance company.
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