Will a Structured Settlement Be Right for You?
Posted Thursday, April 28, 2016 by Chris Thayer
When a personal injury claimant wins or settles their case, they often have the choice of whether to accept one lump sum payment or a series of payment over time. This series of payments over time is referred to as a structured settlement.
Whether you should accept a structured settlement depends on many factors including your financial needs, tax situation, your expenses, and your ability to manage money. There is no right or wrong answer. It really depends on your needs and a structured settlement is your decision to make. A skilled Seattle injury settlement lawyer can advise you.
How a Structured Settlement Works
If you agree to accept a structured settlement, you will receive monetary payments over a specific period of time. For example, if you receive a $500,000 settlement award, you could receive $50,000 per year for a period of ten years payable on a specified date, such as every July 1 for ten years.
You also have the option to design your structured settlement so that it provides money to you when you need it. These are some of the options that you have with a structured settlement.• Large lump sum payments with smaller supplemental payments. For example, if you were out of work for a long period of time and have bills to pay, mortgage payments, or an aging car that needs to be replaced, it may be advisable to take a larger amount of your settlement up front to pay those bills and accept smaller payments over time.• Small payments increasing over time. You can also opt to receive smaller payments up front with larger payments increasing in time.• Large payments decreasing in time. Conversely, you have the option to receive larger payments at first and have them decrease in time.• Payments for extraordinary expenses. If you anticipate extraordinary expenses such as tuition or a mortgage loan pay off in the future, it might make sense to receive larger settlement payments later on.• Delayed payments. If you have no need for cash right away, your payments can be paid out in the future on a designated date.• Structured settlement as an annuity. With an annuity, the defendant transfers its obligation to an insurance company who can manage payments over time. Some experts argue that this is a more stable financial option than betting on the defendant’s continued financial health.
Is a Structured Settlement Right for You?
The decision as to whether to accept a structured settlement is yours. Your attorney can help lay out the options, but you also hear from a financial expert. Consider:• Tax consequences. Your structured settlement and how you receive it could be taxable depending on how the settlement is structured, what the settlement represents (for example, compensatory as opposed to punitive damages), and state and federal laws. • How will you use your settlement money? How you design a structured settlement depends on what you need the money for, and when you need it. For example, if you need the money right away to pay bills, make mortgage payments or to pay other expenses, it might make sense to accept a larger sum up front with smaller structured payments. On the other hand, you may not have a need for any cash right away and it might make sense to receive payments over time• Think about your emotional health. Do not let your grief or trauma adversely affect your financial decisions. Think about your future financial needs such as medical expenses, a down payment on a house, tuition, retirement or additional income and what other expenses you may have in the future.• Whether you have the financial management skills to manage your money. Not everyone is used to managing their own money. Think carefully about whether your financial skills are such that you can handle a large lump sum payment or whether you need assistance managing your money so that you can make informed decisions.• Whether you are likely to spend the money right away or make high-risk investments. Many people fall financial victim to scams, risky investments, and other unwise money moves. Be honest with yourself about your spending habits when deciding how to structure settlement payments.• Will you have other financial pressures on you? For example, do you anticipate being pressured by friends, family, or strangers to loan them money or give them handouts. This should factor into your decision how to design a structured settlement. • Do you have the right financial guidance? Professionals such as a financial advisor, accountant, trustee, or attorney can help guide you as to investments and other financial decisions.
Before You Enter Into a Structured Settlement
Whether to use a structured settlement is an important financial decision. These are some tips to consider before you sign:• Have a good understanding of what your financial needs will be in the future.• Be realistic about your money management skills.• Think about what kind of life you want to have and how your financial settlement will fit into that picture.• Consider your options before deciding.
• Choose a reputable and well-established insurance or financial company. This is not a time to go with a new company. Review the payor’s financial health.• Consult with an accountant or other financial advisor beforehand.• Sleep on it.
Seattle injury settlement lawyer Chris Thayer can help you evaluate your case as well as its eventual settlement option. 206-340-2008.