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Sometimes when a plaintiff settles a case for a large amount of money, the defendant, plaintiff’s lawyer or financial planner consulted in connection with the settlement, will propose paying the settlement in installments over time rather than in a single lump sum. When the settlement is paid in this way is called a structured settlement. Often the structured settlement will be made through the purchase of one or more annuities, which guarantee payment in the future. A structured settlement may provide for payment in almost any schedule the parties choose. For example, the settlement could be paid in annual installments over several years, or can be paid in periodic lump sums structured settlement every few years.

structured settlement

One significant advantage of a structured settlement is tax avoidance. With the right set-up, a structured settlement may significantly reduce the plaintiff’s tax liability as a result of the settlement, and may in some cases be tax free. A structured settlement can protect the plaintiff from having settlement funds lost, when they needed to pay for future care or needs. Sometimes a structured settlement can help protect the plaintiff from himself – some people just are not good with money, or could not say no to relatives that want to “share the wealth”, and even a large settlement can be quickly depleted. Children may benefit from a structured settlement as well, such as a settlement that provides for certain expenses during their youth, an additional disbursement to pay for college or other educational expenses, and then one or more payments in adulthood. Injured people who have long term special needs may benefit from having periodic lump sums that can be used to purchase medical equipment or modified vehicles.

In some situations, it would be better for severely disabled plaintiff to establish a special needs trust, rather than enter into a lump sum or structured settlement. Any plaintiff who receives, or expects to receive, Medicaid or other public assistance, or a guardian or conservator entered the settlement on behalf of wards with disabilities, should consult a financial planner disabilities about their situation before choosing a specific settlement option or structure. Potential Losses Structured Settlements, some people who enter into structured settlements feel trapped by the periodic payment. They probably want to buy a new home, or other expensive items, but not able to gather resources because they can not borrow against future payments under their settlement. Some people will do better by receiving a lump sum settlement, and the investment itself. Many standard investments will provide greater long-term return than the annuities used in structured settlement.