How to Understand Structured Settlements

Structured Settlements – How they are Created

Generally, a structured settlement comes about when a plaintiff sues for damages and wins a court case for a personal injury claim. In turn, the defendant in the case pays the plaintiff the amount decreed by the court. If the case results in a large monetary settlement, then the defendant’s lawyer will usually suggest that the settlement in the case be paid in installments over a span of time, instead of making one lump sum payment to the plaintiff.

Terms for Payouts for Structured Settlements

In turn then, the defendant will purchase an annuity which will make it possible for him to guarantee payment for the settlement – thus, the name – structured settlement. The two parties in the case can agree to one of a number of ways for payments to be made. For instance, the plaintiff may wish that he obtain payments each year for so many years, or payments could be rendered, say, every three years or five years, depending on the wishes and monetary requirements of the defendant.

Some Benefits of Receiving Settlement Payments

One of the primary benefits of receiving payments in this way is the tax advantage. Payouts are made tax-free. Plus, structured settlements are an ideal way for someone who is not well-versed in budgeting to manage a sizable amount of money.

How Settlement Payments Can be Used

The settlement payments for structured settlements can be used in a number of ways. For example, some recipients use the money to pay for their children’s education or for any unforeseen medical costs. If a recipient is unable to work because of a debilitating injury, he can use the payouts of a structured settlement to pay for his basic living expenses. The money often is used, in such circumstances, for therapy costs and medical equipment as well. In instances where a plaintiff is severely incapacitated, then a supplemental benefits trust, also called a special needs trust, may be established in lieu of a structured settlement. Besides an attorney then, it is often in the best interest of recipients of structured settlements to also consult with a financial planner too.

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