The Definition on What is a Structured Settlement

If you want more information on what is a structured settlement, then read-on to find your answers here.

Structured settlement involved a series of payment to a person after a suit is settled. The sum involve can be large or small and it also involves tax issues i.e. tax deductions. If you win the lawsuit, then you are entitled for payment – can be from an individual or a company. The payment can be in one lump sum or it can be paid over a period of time by installment. Normally for small amount, one lump sum payment is preferred whereas for a big settlement, it is normally in installment. The amount payable will depend on the agreement between you, the winning plaintiff and the individual or company that you file a suit.

What is a Structured Settlement – Flexible Payment Mode

For installment payment, it can be designed to suit your financial needs over a period of time. For example, a big lump sum may be paid initially to cover whatever costs that you need i.e. medical bills. The balance can be paid periodically after taking into consideration your monthly financial needs i.e. monthly medical bills for follow up, daily living expenses and other related costs.

Most beneficiary of structured settlement will view this as a trust held on your behalf by the government. The money paid will be from the defendant over an agreed timeframe and in most cases, the tax reduction will be taken into consideration as well.

Now, in order to arrive in such a scenario, you need to have discussion with the defendant to come into an agreement. The defendant will be required to purchase an annuity to make sure that all future payments are covered. This is to protect you from any future money received and I am sure you want that to be taken care of.

As long as the payment is there and has not reached the end, you will receive some monetary compensation every month and that is guaranteed payment. For some this is some form of investment and the money received is considered as return on investment (ROI) and you are expected to manage your tax issue well so as to reduce to total amount of tax payable.

What is a Structured Settlement – The Advantages

The key benefit of structured settlement is a guaranteed source of income every month. By choosing to go for installment instead of one lump sum payment, the recipient can lower the total tax payable quite substantially and stretch the tax bills over a period of time – as long as the payment still exist.

One of the major disadvantages of this settlement is that you cannot change the mode of payment or change anything at all once all the terms are set and agreed on. Your only options will be to sell the settlement and receive one lump sum payment. Again, the tax issue will come in once you receive the payment at one go. However, if that is the only option you have, you just have to do this and pay all the tax bills.

After reading this, you should have a better understanding on what is a structured settlement and should you win any lawsuit in future, then you’ll know what actions to take.