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. This flexibility is why many litigants recommend structured settlements to their clients rather than a one-time payment after winning a case. Federal law, as well as additional regulations in 48 states, require court approval to transfer structured settlement payments.
Some municipalities even have stricter regulations and are generally in areas where there is a larger population at risk with structured settlements. The defendant, or his insurer, may assign its periodic payment obligation to a qualifying assignment company (usually a single-purpose subsidiary of a life insurance company) that funds its assumed obligation with an annuity purchased from its affiliated life insurer. 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 Medicare structured reserve agreement (MSA) generally costs less than an unstructured MSA due to the amortization of future cash flow over the life expectancy of the claimant, rather than funding all payments due in the future in a single undiscounted sum today.
A structured agreement can be used in conjunction with settlement planning tools that help preserve the claimant's Medicare benefits. Structured settlement payments are secured and irrevocable; however, annuity settlement options may differ from typical revenue contracts. Structured settlements became more popular in the United States during the 1970s as an alternative to lump-sum settlements. Therefore, structured agreements were used more to ensure that money was withheld and used for child care as prescribed by the court.
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. New Hampshire, Wisconsin, and the District of Colombia do not have structural agreement protection laws, but homeowners can still sell payments in the state where the insurance company is located. A structured settlement under the terms of the tax code is an agreement that meets the following requirements. And if the settlement just isn't that big, you won't get a significant advantage from a structured settlement.
Any sale of structured settlement payment rights will require the approval of a judge to comply with the local state structured settlement protection law and IRC 5891.