structured settlements: defined
Encouraged by the U.S. Congress since 1982In 1982, a bipartisan coalition of legislators in Congress came together to pass legislation that amended the federal tax code. Their action, The Periodic Payment Settlement Act of 1982 (Public Law 97-473), formally recognized and encouraged the use of structured settlements. Internal Revenue Code §104(a)(2) and §130(c) clarify that the full amount of any received on account of a personal physical injury through a qualified structured settlement annuity is exempt from taxation when received (by contrast, the investment earnings on a lump sum payment are generally subject to taxation)., structured settlement annuities ("structured settlements") can offer an income-tax-free investment opportunity to plaintiffs in connection with a wrongful death, personal injuryIn order for money received through a structured settlement to be exempt from taxation must be received on account of personal physical injury and cannot be received as a result of emotional distress and/or medical damages that were already paid for and deducted by the recipient. Please email email@example.com for more information., and/or workers compensation settlement or verdict.
Designed by the plaintiff and tailored to meet his or her future needs, a structured settlement is created through an agreement between a plaintiff and a defendant whereby all or a portion of a settlement is paid to the plaintiff in the form of periodic payments rather than in one lump sum. A structured settlement may be agreed to privately (i.e. in a pre-trial settlement or mediation agreement), or it can be made pursuant to a court order, which often occurs in judgments involving minors.
Structured settlement payments are guaranteedThese Guarantees are based on the ability of the issuing life company to satisfy their financial obligations. The regulations that pertain to Life Insurance companies and the products they sell are some of the strictest in the financial marketplace today. and backed by highly rated and regulated life insurance companies. These secure, income-tax free payments are not subject to market fluctuations and provide for surprisingly high rates of return. The U.S. Congress amended the federal tax code in an effort to encourage structured settlements by explicitly providing that money received on account of a personal physical injury through a structured settlement annuity is 100% exempt from income taxationMoney received on account of non-physical injuries can be received over time via a non-qualified structured settlement annuity. Because money received on account of injuries that fall outside the scope of a personal physical injury is taxable, any such money that is placed into a non-qualified structured settlement annuity is also subject to taxation. Note: a non-qualified annuity can serve as a great tax deferral and income producing investment, so please contact Forge to learn more about this structured settlement annuity alternative.. This exemption includes both the original amount invested and any interest earned on it over time. The combination of security and tax-exempt status and the ability to achieve investment yields that are typically associated with far riskier investments makes the structured settlement a key component of any settlement plan.
Call Forge Consulting today to learn more about structured settlements.