InvestmentD

Defining A Structured Settlement

A structured settlement is a common method for companies or individuals to pay settlements that are awarded to plaintiffs. When a defendant pays the settlement in installments, rather than in a single lump sum, the defendant is paying a structured settlement. Structured settlements can be paid out in several ways to suit the needs of the defendants. Some structured settlement plans include an initial lump sum payment that is followed by monthly payments, and other structured settlements are simply paid in monthly or yearly installments.

Advantages Of A Structured Settlement

A plaintiff may initially choose a structured settlement over a lump sum for several reasons. The most common reason that plaintiffs choose structured settlements over large lump sum payments is for taxes. Taxes are a lot less on structured settlements than on the investment income that would accumulate with a lump sum settlement. Perhaps the second most common reason is that it can be stressful and confusing to manage a large lump sum payment. Individuals who do not have experience handling large amounts of money may find it beneficial to rely on the smaller payments. This is especially true for individuals who do not trust themselves not to spend the bulk of the money on trivial things, rather than prepare for the future.

Disadvantages of A Structured Settlement

The main disadvantage of a structured settlement is that once it is agreed upon, all parties are bound to the original payment terms. It is essential to seek advisement from a tax adviser and a lawyer before agreeing to any structured settlement terms. A tax adviser can help plan the best payment structure to meet an individual’s lifestyle needs. A lawyer can ensure that the settlement plans include clauses for unexpected events, such as the payment awardee’s death. These clauses can ensure that the awardee’s family members or other beneficiaries will continue to receive payments.

Cashing Out Structured Settlements

Individuals who decide later on that they wish cash out their structured settlements and receive a lump sum payment are able to do this by seeking the services of a company that specializes in cashing out structured settlements and annuities. An individual sells the rights to future structured settlement payments and receives a lump sum payment. This is a good option for individuals who need money now, and can spare the losses that are involved with cashing out structured payments. Companies who specialize in cashing out structured settlements and annuities charge a fee for these services, which is determined based on the potential risk involved with the payment, and on the amount of time it will take for the company to recoup its funds from the structured settlement payments.