Structured settlement

1. What Is a Structured Settlement Payment?
Historically, personal injury or product liability lawsuits were settled by the exchange of a single lump sum cash payment in return for the release of claim in a lawsuit. Under this arrangement, it was up to the individual and their families to manage the large initial sum and to use it to provide for the victim's medical and income needs over their entire lifetime. Structured settlements laws were created to help reduce the difficulties faced in these types of situations and to help provide the claimant and their families with long-term financial security.

Structured settlement payment agreements are unique in that they focus more on the beneficiary's financial needs and may provide payments for a certain period of time or throughout the injured persons life time. Formally recognized by the U.S. Congress in 1982, structured settlements are voluntary compensation agreements between the injured person and a defendant(s).

Structured settlements enable the beneficiary to receive a series of periodic payments instead of a cash lump sum. Most settlement agreements are entered into privately (e.g., a pre-trial settlement) while others, usually involving minors or persons deemed mentally unfit, may be created by a court order.

Structured settlements are a creative solution in that the payment amounts and the future annuity timetable are completely up to the parties negotiating the structured agreement. Rather than receiving a single lump sum, victims can receive a customized stream of tax free annuity payments, individually tailored to meet their present and future cash needs. Using structured settlements, annuity payments may be in equal amounts at regular intervals, or they may be paid in periodic lump sums. Larger intermittent payments are sometimes used to provide for anticipated future needs such as funding; a college education, medical equipment replacement (motorized wheelchairs), or planning for retirement. The possibilities for setting up structured settlements are limited only by your imagination. It is important to note however, once the parties have agreed to the structured settlement annuity amounts and timetable, the plaintiff cannot make changes.

Properly structuring payment benefits is very important. Most victims and their lawyers know that structured settlements are tax-free to the injured party. There are other factors however that you and your financial advisor should consider. Special tax ramifications on the investment income of the settlement proceeds need to be considered. In some cases, receipt of a large sum can result in loss of public benefits. It is important for the victim that the structured settlement benefits are properly structured so that the principal can be invested, and that the investment income remains tax free to the injured party. Structuring payments properly can also avoid the loss of public benefits. These are all important financial considerations.

Personal injury victims and their families often find themselves in unfamiliar financial positions, with both large new expenses and the structured settlements proceeds to manage. During this time of adapting to new lifestyle changes, is not a good idea to make large financial decisions unless you are well informed and seek out the advice of experts.

2. Settlement Companies

In recent years, a complete settlement funding industry has been created. Companies will offer to pay for the rights to receive future annuity payments under structured agreements. These companies offer customers the benefit of direct access to cash. Discounting is not free however and the costs can be quite high. The cash price they are willing to pay is much less than the money a person would receive from the future stream of fixed payments.

You may have seen ads encouraging you to "sell a structured settlement payment", and be wondering if you should sell and cash out. This is a serious financial decision especially if you really need the money. You should carefully evaluate your options to determine if the sale of even a portion of your guaranteed settlement payments is truly in your best interest.

To gain immediate access to their money, a person can sell their right to receive all or part of their future structured annuity payments to a settlement buyer. The transaction is pretty straightforward but come at a cost with various fees and expenses. The factoring company acquires the right to receive future structured settlement monies in exchange for a cash payout. If you are considering selling your settlement payments it is wise to call or go online for several free quotes and information from settlement firms you can trust. Then compare the terms, costs and services provided in the offers to guarantee you are receiving top dollar.

While it may be appealing and sometimes even in the recipients best interest to sell one of more future payments, keep in mind that annuities are often sold at a discount. Because of this, it's usually not a wise solution to sell your settlement to access funds for luxury items such as purchasing a new sports car or to finance a vacation. More responsible reasons to sell a series of payments would be to gain access financial capital in during a family emergency. Some people choose to repay a debt or to use the cash for investment purposes such as starting a business or buying a home. Others use the money to fund an entire college education.



The choice is yours, but the implications of a decision to sell should be seriously considered. In this situation you are the customer and should receive great service. As a client you are free to ask the settlement company real questions in total privacy about selling payments and your rights. Use your good judgment and experience but also feel free to ask your attorney for expert legal advice. You may also want to consult with a financial professional to discuss the impact on your taxes and your estate before you accept any cash offer for your structured settlement payments. Remember you are in control. There is no guarantee you will you have enough money to live on after the cash lump sum payment has been spent. Only sell a structured settlement payment if you are sure that you can meet all your future needs.

3. Selling Future Payments

Many individuals receiving a stream of monthly payments under a settlement agreement don't realize that they can sell all or a portion of their annuity payments and be paid a cash sum. Access to this money could provide funding to meet the current life needs of your family instead of waiting for a future stream of inflexible payments structured over a period of a year or more. This process of entering into a contract to sell ones legal right of receiving future structured payments to settlement companies in exchange for the present value of the money is called factoring.

A large number of companies now offer cash for a structured settlement payment. When evaluating your options, try to work with financially sound companies that are competent and ethical. These factors are important considerations to note of when you compare the knowledge and integrity of a company or corporation as well as their dollar offers. It is a always a good idea to shop around and compare companies and offers.

4. Cash Payments or a Structured Settlement?

In traditional settlements, compensation for damages has usually consisted of a single cash payment. History has shown that this money is often unwisely managed and quickly spent, leaving no funds available to provide for future needs. Alternative arrangements know as structured settlements were created in the 1980's. Under these arrangements the beneficiary would receive cash structured settlement payments on a periodic basis. This guaranteed stream of annuity payments could be paid over a period of months, years or a complete lifetime.

Federal and state laws have been created as part of a nationwide policy encouraging the use of structured settlements over cash payments in cases involving injuries. These structures are a favored means of providing annuity income to a beneficiary and reducing their risk of rapidly spending the capital proceeds from a cash settlement. In some cases, former recipients have found themselves with no cash flow, relying on loans for family living expenses. Others have had to rely on direct public assistance as a source of support for the rest of their life. To encourage their use, favorable tax treatment rules have been extended to the cash received under a structured settlement agreement.

5. How to Sell Structured Settlement Payments

Many people who receive monthly annuity payments under a settlement agreement do not realize they can sell all or a portion of their stream of annuity payments in exchange for a cash lump sum. Getting paid this money can be a way to help fund the current life needs of your family. Receiving the cash now rather than waiting a period of a year or more for a stream of inflexible payments structured in the future can be a big advantage to some people. Factoring is the name of the process of selling ones legal right to receiving future structured payments in exchange for a the present value of that money. This sale becomes a legal contract with the settlement company.

Many companies now offer to pay for your rights to receive future annuity payments under structured agreements. An entire settlement funding industry has been created in recent years. The settlement companies offer annuitants the benefit of direct access to cash. However, there is a cost for getting this access to your cash, and discounting is not free. The actual costs can be quite high because the cash price companies are willing to pay is considerably lower than the money a person could receive if they waited for the future stream of fixed annuity payments.

There has been much controversy and legislation regarding selling the future payment rights associated with structured agreements. On January 22, 2002, President George W. Bush signed new protective legislation. This law was designed to protect any individual who has received a settlement annuity as part of a lawsuit or settlement that wishes to sell their structured payments. Under the law a court would have to authorize a transaction to sell future settlement payments. A transaction must in the best interest of the annuitant, their family, dependents or estate to be approved. If a court order and approval is not received, a federal excise tax of 40% would be paid on the total payments sold. This law is intended to help people who receive offers of cash for their annuity payments from being defrauded or taken advantage of by settlement buyers or even their own families.

States nationwide have also created laws regulating the sale of structured settlements. These regulations guard sellers against the past abuses and false statements of unprofessional settlement companies. Under the various state settlement protection acts, the buyer has a legal requirement to disclose the total value of the transferred payments. This amount is compared to the net cash value the selling party will receive. Normally, the discounted present value of the transferred payments is used in this comparison. The interest rates used by investors in this calculation are of particular importance. Failure to use a competitive market based interest rate from the start of the calculation can significantly impact the valuation. It is good ideas to work with finance professionals you trust that have experience in this area. These experts can provide you with personal information, specialized services, and a solution designed to meet your specific situation.

You have probably seen advertisements urging you to "sell a structured settlement payment". Many beneficiaries wonder if they should sell and cash out, especially if they are in a situation where they need the money. This is a major financial decision and you would be well advised to carefully evaluate your options before making a decision. You need to determine if selling all or even a portion of your guaranteed settlement payments is in your best interest. When you receive a cash offer for your structured payments, you need to realize that the money you obtain from the payout will be less than the total of the future settlement payments you would have received over time.

There a many companies who offer will offer you cash for a structured settlement payment these days. As you evaluate the alternatives, try to select competent and ethical companies that are financially sound. These are important considerations you should factor in when you evaluate the integrity and knowledge of a corporation or company. There is more than just the dollar amount of the offers to consider.

Are you considering selling all or part of your periodic payments? A good way to start would be to compare several offers and their terms to make sure you get the best deal for your settlement. There is no obligation to get a free quote and it is fast and easy. It just takes a quick phone call or you can go online to get a specific dollar amount quoted. It is a good idea to compare offers. When you request an offer to see what your settlement is worth, it usually helps to have any supporting documentation. Having copies of your settlement agreement and your annuity policy available will help. You should receive a quick and accurate quote of money you would receive if you sold your structured payments.

A settlement broker can help their clients with the sale of future structured payments. The right settlement company can be invaluable since they have experience dealing with annuity purchasers. Knowledgeable brokers understand taxes and the settlement claims processes. They will also support your right to privacy when a payment is purchased. These companies can answer your specific questions as well as providing the necessary paperwork and forms. These brokers have already established relationships in the legal community and with settlement buyers, which can be a valuable asset.

It usually takes about two months from the date you start to complete a sale and for you to actually receive the cash when you sell insurance payments. This process will go more quickly with the aid of a legal professional who specializes in making settlement agreements and knows how to sell payment structures. You may also wish to consult your tax advisor.

Even when it is in the recipients best interest to sell one of more future payments, you must keep in mind that annuities are sold at a discount. The money received in a sale will be far less than the total of the structured payments you would have received through the life of the annuity. It is usually not the best idea to gain access funds for luxury items such as purchasing a new sports car or to finance a vacation thought the sale of your settlement. Financial or family emergencies are typically the reasons cited when a person decides to sell a series of payments and gain access their financial capital. Whether you choose to use the cash for investment purposes such as starting a business or buying a home, repay a debt, or use the money to fund an entire college education, the choice is yours. You get to make the decision, but remember the implications of your decision should be seriously considered. You want to make sure there is enough money to live on after the cash lump sum payment has been spent.

6.Structured Settlements in the United States
The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the Federal Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations impact structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” the “Special Needs Trusts”.
Injury victims should know that structured settlements are endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities and the National Organization on Disability

7. Considerations Before Selling Your Settlement

Considerations Before Selling Your Settlement

Factors which should be taken into consideration before selling a structured settlement include:

Legal Restrictions - Due to the nature of some settlements, there may be legal restrictions on their sale.

Contractual Restrictions - Some structured settlements and annuities are set up in a manner which makes it difficult to impossible to sell them.

Tax Considerations - A structured settlement may offer considerable tax savings to an injured plaintiff, whereas a cash payment may subject the plaintiff to a significant, immediate tax liability.

Low Offers - Sometimes a buyer of structured settlements will make an unreasonably low offer for the settlement.

These factors are outlined in greater detail in this associated article, "Selling Your Structured Settlement".

8.Cash Payment For Your Structured Settlement

If you are the beneficiary of a structured settlement as the result of a personal injury, medical malpractice, or workers' compensation case, you may have seen ads that promise "cash for your structured settlement", and be wondering if you should cash out. Even if you really need the money, you should carefully examine your options, and try to determine if selling your settlment is truly in your best interest.
Promises of Cash Payment for your Structured Settlement

A growing number of companies offer "fast cash" or "cash payment" for structured settlements. You should try to make sure that the company you choose to work with is on sound financial footing, such that you are not at risk for default on your promised cash payment after you sign over your annuities. You should also make sure that your company is competent and ethical, and won't try to come back at you if they later have problems obtaining your settlement payments after you are cashed out.
Before You Enter Into a Structured Settlement

Not all plaintiffs have the luxury of choosing whether part or all of their settlement will be structured. For example, a number of states require that certain future damages awards be paid in installments as opposed to in a lump sum, or permit a defendant to petition the court to pay future damages in installments. However, where a plaintiff can choose between a structured settlement or lump sum payment, care should be taken to make the correct choice.

Benefits of a structured settlement include possible tax avoidance, preservation of settlement funds for future care and future needs, and coordination of settlement proceeds with other benefits or public assistance.

Disadvantages of a structured settlement include possibly not having the available funds to make necessary purchases, or even desirable discretionary purchases, high commissions on the purchase of annuities, and a low yield as compared to other investment options. Also, if payments are equal, each payment will actually be reduced in real value as compared to the prior payment due to the effect of inflation.