Structured personal injury settlements are claim awards that are offered to the recipient in installments, often over several years. They enable an injured party or the family of a person who has suffered fatal injuries because of another person’s negligence to take care of life’s necessities.
Structured Settlements Enjoy a Favorable Tax Treatment
Structured settlements enable injured persons and their families to be self-reliant – they don’t have to depend on public assistance to cater to their needs. For this reason, the government treats structured settlements favorably when it comes to taxation.
Structured settlements are not classified as an increase in income. Instead, they are designed to help injured persons and their loved ones return to their original financial position before they were injured. Consequently, structured settlements are often common in cases that involve a serious injury or fatality.
Structured Settlement Examples
Structured settlements may be used to resolve a wide array of lawsuits. The following are examples of structured settlements:
Workers’ Compensation Settlements
Employees who are injured or killed at the workplace may be eligible for a workers’ compensation settlement. The 1997 tax code amendment promotes the use of structured settlements to resolve workers’ compensation claims.
Wrongful Death Settlements
These settlements usually resolve cases filed by family members of individuals who died due to the negligent or careless conduct of another party or entity.
Wrongful Incarceration Settlements
When a person is acquitted after spending some time in prison, he or she may bring a claim against the government agencies that led to his or her wrongful incarceration. Structured settlements can help such a person manage his or her finances effectively after his or her release.
Discrimination Settlements
Awards in discrimination lawsuits are usually taxable. The dissemination of money through a structured settlement, however, softens that requirement by enabling the recipient to postpone taxes until he or she receives payments.
Motor Vehicle Accident Settlements
These structured settlements resolve cases brought by people injured due to the negligent or reckless behavior of another person. If a driver, for instance, suffers injuries due to another driver’s negligence, he or she may obtain a car accident settlement by suing the liable party.
How are Structured Settlement Payments Distributed?
The structured settlement money is distributed as a series of regular payments usually financed through an annuity. They may also be financed through U.S. treasury bonds or self-financed by the defendant, who assumes the responsibility of meeting all the payment requirements. Payment schedules vary based on the kind of annuity chosen.
Temporary Life Annuity
These annuities offer payments for the recipient’s entire life, but no money goes to the beneficiaries once he or she dies.
Lump-Sum
Some annuities distribute settlement payments after a specific date. If the recipient dies prior to that date, in some cases, his or her beneficiaries may get that amount on the specified date.
Life Contingent
Life contingent is a type of lump-sum arrangement. In this arrangement, beneficiaries are never paid if the recipient dies before the designated date.
Joint and Survivor Annuities
Under these annuities, beneficiaries continue to receive regular payments after the recipient dies.