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- What is a structured settlement?
- Why is a structured settlement in the best interest of everyone involved?
- What kind of flexibility does the plaintiff receive from a structured settlement?
- Why were structured settlements created?
- At what point in the litigation process should I contact FORGE?
- How are the payments negotiated?
- Do structured settlements apply to a specific kind of case?
- What are some of the federal tax rules that make structured settlements beneficial?
What is a structured settlement?
Structured settlements, an innovative method of compensating personal injury victims, are a voluntary agreement between the victim and the defendant. Rather than receiving compensation in one lump sum, the victim receives a customized flow of tax-free payments, tailored to meet future medical expenses and basic living needs. In comparison, the interest or growth on a lump sum is taxable, and often place the victim or their family in a difficult financial position - with the victim focused on adapting to a new lifestyle, there often is not the time to manage large sums of money.
Why is a structured settlement in the best interest of everyone involved?
Structured settlements are virtually risk-free, and provide a guaranteed income stream. Statistics indicate that up to 90% of all lump sum awards, regardless of size, are completely exhausted within five years.
- The tax-free nature of this instrument delivers a significantly higher after-tax benefit than a lump sum settlement.
- The settlement provides both a guaranteed income and a guaranteed rate of return for a specified period, or for an entire lifetime.
- Payments need not be in equal amounts. For instance, additional payments can be planned at specific intervals to satisfy various needs.
- Unlike ordinary investments, no administrative fees are attached.
- Plaintiffs unaccustomed to large sums of money are relieved of the stress of managing an unwieldy investment.
- Plaintiffs who are sophisticated investors appreciate the tax-free income stream.
- Plaintiff attorneys can find comfort in knowing their clients' long-term needs will be met.
- A finely crafted structured settlement shows due diligence was taken in meeting the client's needs.
- Plaintiff attorneys have the option to structure a tax-deferred fee settlement that provides them with both tax advantages and a guaranteed cash flow.
What kind of flexibility does the plaintiff receive from a structured settlement?
Herein lies the true power of structure. When dealing with a settlement company, plaintiffs have the freedom to build their structure according to their specific needs. For example, an injury victim with foreseen medical expenses can structure a plan that allows for a larger payment in consecutive years. Not only can plaintiffs determine the amount of their installments, they can also decide how long they will last, from a few years to the rest of their lives.
Why were structured settlements created?
Before The Periodic Payment Settlement Act of 1982, the damages resulting from a personal injury lawsuit were traditionally awarded with a lump sum payment. Over time, it became apparent that lump sum payments were not as beneficial as they seemed; in fact, they proved to be detrimental to the plaintiff over a longer period of time. It became imperative to install a system that provided plaintiffs with long-term security and a reliable, tax-free stream of payments, hence the creation of the structured settlement.
At what point in the litigation process should I contact FORGE?
To ensure that your client has the ability to select structured-settlement features that offer lifelong security and valuable tax advantages, it is crucial that you contact FORGE Consulting the moment you get the case, or at any point before the case is settled. FORGE will anticipate and address the victim's long-term medical and household needs, including adjustments for inflation. Our virtually unmatched financial and legal resources allow us to better assist you in choosing between settlement amounts and obtaining superior pricing.
How are the payments negotiated?
When a case involves personal injury, the amount of money necessary to cover the victim's medical care and living costs is negotiated between the plaintiff and defendant. To ensure that plaintiffs receive the best settlement possible, it is essential to involve a structured settlement expert, who will work in the client's best interests and find a plan that works for them.
Once this agreement is made, the defendant funds a stream of payments to the plaintiff, according to specific needs. In most cases, the defendant then transfers the responsibility to a "qualified assignment," which funds the damage payments with an annuity.
Do structured settlements apply to a specific kind of case?
Traditionally, structured settlements have been utilized in personal injury cases, especially those involving very serious injuries. However, FORGE Consulting has found that these flexible settlements bring stability and tax advantages to a wide range of cases, involving:
- Minors or incompetents
- Settlements as low as $10,000
- Government benefits, such as SSD, SSI, Medicare and Medicaid
- Special needs trusts
- Mergers and acquisitions
- Taxable recoveries
- Workers compensation
- Wrongful death cases
What are some of the federal tax rules that make structured settlements beneficial?
Section 104(a)(2) of the Internal Revenue Code states that the full amount of the structured settlement payments is tax-free to the victim. In comparison, once a lump sum reward has been invested, its earnings are usually fully taxable.
Section 130 specifies the requirements to establish a qualified assignment:
- The company assumes the liability from the defendant, who then takes the case off of their books.
- An agreement must be made between the plaintiff and defendant that the payment schedule cannot be altered.
- The annuity may be excluded from the recipient's gross income.
- The injury must be physical in nature.
- A financially sound funding asset, which is usually an annuity, must fund the payments.
