Christy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Written By Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Christy Bieber, J.D. ContributorChristy Bieber has a JD from UCLA School of Law and began her career as a college instructor and textbook author. She has been writing full time for over a decade with a focus on making financial and legal topics understandable and fun. Her work has.
Contributor Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Written By Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Mike Cetera Editor in Chief, Forbes Marketplace U.S.Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The.
Editor in Chief, Forbes Marketplace U.S.
Hector has more than 45 years of experience as a successful trial lawyer and has been recognized for his outstanding legal work as well as his deep concern for his clients. The breadth of his legal experience extends to include wrongful death, wrongf.
Hector has more than 45 years of experience as a successful trial lawyer and has been recognized for his outstanding legal work as well as his deep concern for his clients. The breadth of his legal experience extends to include wrongful death, wrongf.
Hector has more than 45 years of experience as a successful trial lawyer and has been recognized for his outstanding legal work as well as his deep concern for his clients. The breadth of his legal experience extends to include wrongful death, wrongf.
Hector has more than 45 years of experience as a successful trial lawyer and has been recognized for his outstanding legal work as well as his deep concern for his clients. The breadth of his legal experience extends to include wrongful death, wrongf.
Updated: Jul 30, 2024, 9:42am
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Key Takeaways
In personal injury claims and other cases where plaintiffs may receive a settlement offer or a damage award, plaintiffs will most often receive a lump sum payment. However, there is another option. A structured settlement is an alternative that could be a better choice in some circumstances.
This guide will explain what a structured settlement is, how it works, why plaintiffs might want one and how to get one.
A structured settlement is an alternative to a lump sum payment awarded by the court following a lawsuit.
Instead of receiving money up front, plaintiffs receive a series of payments over time if they select a structured settlement. This can help injured victims avoid the complications associated with a single large payment and enable them to receive guaranteed income over time to help cover costs.
Structured settlements occur only in lawsuits that are settled. The plaintiff and the defendant negotiate a mutually agreeable settlement. The plaintiff can request that the funds be made available as a structured settlement or the defendant may make the offer.
Both parties must agree to the terms. The settlement is submitted to the court for approval and becomes effective once the judgment is signed by the court.
The plaintiff and defendant will need to agree on the terms of the structured settlement, including when and how money will be paid out and how long the payments will last. The defendant will then make periodic payments according to the agreed-upon terms or will purchase an annuity from an insurance company that makes the agreed-upon payments.
The plaintiff then receives payments according to the terms of the settlement or the annuity. This provides guaranteed income or compensation to the plaintiff and fully resolves the lawsuit.
Structured settlements can be available in any type of legal case where a plaintiff is awarded damages by a defendant. Some of the different types of cases where a structured settlement may be appropriate include:
An experienced attorney can provide insight into whether a structured settlement could be an available option as a way to resolve a claim.
Typically, the structured settlement process works as follows:
In most cases, it is best for both the plaintiff and defendant if the defendant purchases an annuity from an insurance company. The plaintiff benefits by not having to rely on the continued financial viability of the defendant. And the defendant benefits from getting this ongoing obligation off their books and being able to move on.
Structured settlements can be arranged in different ways depending on a plaintiff’s payment needs and depending on the agreement with the defendant. Some common arrangements for structured settlements include the following:
The right type of structured settlement will depend on the reason for the settlement, the extent of damage suffered and the way the funds will be used. For example, if a plaintiff sustained injuries that will become more debilitating over time, a structured settlement with increasing payments could be a better choice. But if a victim is expected to slowly recover from injuries over time, then decreasing payments may be the better option.
The timeline for a structured settlement depends on the initial arrangement with the defendant and, if applicable, with an assignee. These settlements are often, but not always, guaranteed to last for life. Sometimes, a death benefit is also paid out to surviving loved ones. Other structured settlements will last only for a limited period of time, such as 10 or 20 years.
If a plaintiff receives compensation for physical personal injury, generally the settlement is tax-exempt if the settlement is for:
While the money from the settlement is tax-exempt, if the plaintiff invests the money from the settlement, interest earned could be taxed. However, the rules are different for plaintiffs who receive a structured settlement as an annuity. The principal and interest received are generally tax-exempt in this situation.
Punitive damages are not tax-exempt, however. Money received for punitive damages will be taxed as income.
There are both advantages and disadvantages to structured settlements. Here are some of the biggest advantages:
There are also some drawbacks to structured settlements:
An experienced personal injury attorney can help accident victims weigh the pros and cons and decide if a structured settlement is the right choice.
When you agree to a structured settlement, you will receive compensation for an injury over time instead of in a lump sum payment. This can be a good idea because you will have a stream of income that is generally tax-free and you don’t have to worry about investing or managing the money. However, there are some drawbacks, including less flexibility in how you access your compensation after the settlement.
Generally, a settlement agreement gives the rights of ownership of a structured settlement annuity to the assignment company that purchased the settlement for the plaintiff with funds from a defendant. The settlement payee owns the right to receive payments from the annuity.
Whether you should take a lump sum or a structured settlement depends on your needs and your uses for the money. If you want to receive all of the funds up front to spend or to invest independently, then a lump sum payment is best. But if you want reliable, ongoing income that is typically tax-free and that can be guaranteed to last for a designated time, then a structured settlement may be best.
Structured settlements are created as a result of a personal injury award or a settlement agreement in a personal injury claim. Defendants can self-fund a structured settlement or purchase an annuity that provides ongoing payments to a plaintiff. Regular annuities, on the other hand, can be purchased by individuals from insurance companies even if there is no legal claim. They provide regular payments that can be useful in retirement planning.
