Structured settlements are a common way for plaintiffs to receive compensation in a personal injury lawsuit. Rather than accepting a lump sum payment, the plaintiff agrees to receive regular payments over time through an annuity purchased by the defendant’s insurance company. But are these structured settlement payment arrangements truly permanent?
How Structured Settlements Work
With a structured settlement, the defendant’s insurer buys an annuity from a life insurance company. This annuity provides a stream of tax-free payments to the injured party (the plaintiff) over a set period of time – often many years or even the rest of the plaintiff’s lifetime.
he plaintiff, in exchange for settlement money, gives up the option to get a large sum all at once, choosing instead the steady income provided by the structured settlement. Proponents argue this ensures funds are available over the long term to cover expenses related to an injury.
Structured settlements were first encouraged by the Periodic Payment Settlement Act of 1982. This federal law amended the tax code to allow these arrangements, recognizing their benefits for plaintiffs in personal injury cases. The payments are exempt from federal income taxes.
Structured Settlements Can Be A Permanent Income!
Structured settlements are designed to provide a permanent solution to cover long-term costs arising from an injury. Rather than worrying about investing and managing a large payout, the regular payments through a structured settlement create an ongoing income stream.
For a plaintiff coping with physical injury cases, permanent disability, or long recovery, this steady stream of funds can provide lifelong financial security. An attorney will often recommend a structured settlement to provide income that addresses a client’s current and future medical expenses, living costs, loss of earnings, and other damages.
So, in their intent and original design, structured settlements are very much meant to be permanent arrangements benefiting an injured party. Defendants and insurance companies accept this ongoing obligation in exchange for avoiding a large sum of money.
“Structured settlements provide guaranteed long-term income that gives the injured party financial security.”
Structured Settlements Can Be Changed!
However, there are certain scenarios in which the terms or duration of a structured settlement can be altered:
- Selling payments – Many companies now offer plaintiffs the opportunity to sell some or all of their future structured settlement payments in exchange for an immediate lump sum. This requires court approval but allows plaintiffs to unlock funds early.
- Qualified assignments – The defendant’s obligation can be transferred to a third party, provided the plaintiff agrees. This gives the plaintiff more certainty the payments will continue.
- Death of the payee – Most structured settlements include provisions for what happens when the original recipient dies. Payments may end or continue to a beneficiary.
So, while most structured settlement annuities are designed for permanence, options exist to redirect or monetize future payments if needed. An experienced personal injury attorney can advise plaintiffs on their options.
Selling Your Structured Settlement Payments
In recent years, an industry has emerged that lets recipients sell their future structured settlement payments in exchange for cash. The deals are made with companies called settlement purchasers.
To protect recipients, most states and the Federal Government enacted laws requiring court approval for such transfers. Judges must confirm the deals are in the seller’s best interest. However, consumer advocates worry many sellers do not get a fair price.
There are cases involving why plaintiffs might want to sell their future annuity payments, like:
- Covering sudden medical care costs
- Paying off debts
- Starting a business
But sellers must carefully weigh the advantages and disadvantages both. They lose out on years of steady tax-free income that was intended to support them. High fees charged by settlement purchasers also cut into the lump sum received. And if the cash is squandered quickly, the injured person loses their financial safety net.
“Selling your structured settlement payments can provide immediate needed cash but puts the future fixed payments at risk.”
Qualified Assignments Add Flexibility
While selling payments transfers obligations away from the original defendant, qualified assignments do so in a more controlled manner.
With a qualified assignment, the defendant’s obligation to make future payments is transferred to a third party, with consent from the plaintiff. The third-party takes over making the payments according to the settlement terms.
Qualified assignments can benefit the plaintiff by ensuring payments continue even if the defendant’s financial situation worsens. It also lets the defendant resolve their liability immediately. The third party that assumes responsibility for payments is typically highly rated for financial stability.
To protect plaintiffs, federal law requires they approve qualified assignments in writing. Plaintiffs should consult their attorney before agreeing. Overall, this option preserves the ongoing tax-free income while adding more certainty.
Impact of the Payee’s Death
Structured settlements are usually customized to address what happens when the original recipient dies. There are three main options:
- Payments stop – The most basic outcome is the payments cease upon the payee’s death. This avoids overcompensating their estate.
- Payments continue to the beneficiary – The settlement can name a designated beneficiary, like a spouse or child, who continues receiving payments.
- Payments return to defendant – Some settlements specify remaining payments return to the defendant if the payee dies. This especially protects defendants in long-term settlements.
Consulting an estate planning attorney can help plaintiffs decide the best provisions for their situation. For instance, a lifelong disability may warrant payments continuing to beneficiaries versus ending at death.
The Bottom Line
While structured settlements are intended to provide steady tax-free income for life, some flexibility exists. Those facing financial hardship can pursue options to receive settlement funds sooner through qualified assignments or settlement purchasers.
However, each option has disadvantages to weigh, like fees and loss of future stability. Anyone considering altering their structured settlement funding should first consult their personal injury attorney. These legal professionals can help maximize benefits and avoid pitfalls when navigating settlement options.
Structured Settlements to Cover Expenses
What types of expenses can a structured settlement cover?
A structured annuity can provide tax-free income to cover many types of current and future expenses arising from an injury. These include medical costs, rehabilitation, lost wages, household expenses, educational costs for a child, and more. The periodic payments can be customized—daily, weekly, or monthly payments—depending on the terms of the arrangement, to meet the recipient’s needs.
How are the payment amounts and schedule determined?
The plaintiff, defendant, and their attorneys will negotiate the amount and payment schedule during settlement talks. They consider factors like the recipient’s lifetime costs, IRS life expectancy tables, and the cost to fund the settlement. Experts like structured settlement consultants may provide calculations to help determine fair terms.
Receiving Structured Settlement Payments
How do I receive my structured settlement payments?
You will receive checks or direct deposits on the scheduled dates specified in your structured settlement agreement. A structured settlement annuity provided by a highly-rated life insurance company funds the payments. The annuity issuer handles sending payments to you or your beneficiary.
What happens if I move – will payments continue?
Yes, your payments will continue even if you move. Just provide your updated contact information to the annuity issuer administering your structured settlement payments. They will ensure you continue receiving checks at your new address or by direct deposit.
Structured Settlements in Wrongful Death Cases
Can a structured settlement provide income to multiple beneficiaries?
Yes, in wrongful death cases, the settlement can provide structured payments to the surviving spouse, children, or any other named beneficiaries. Different beneficiaries may receive payments for different durations depending on their life expectancies.
What happens if a beneficiary dies before the payments end?
The settlement terms will specify what happens if a beneficiary dies early. Payments may redirect to an alternate beneficiary, revert to the defendant, or end altogether depending on the agreement. Consulting an attorney helps maximize benefits for all beneficiaries.
Bara is a seasoned expert in the structured settlement and annuity field, with a successful career in structured settlement factoring. Her experience spans prominent companies such as J.G. Wentworth, Peachtree Settlement Funding, and Liberty Settlement Funding, where she managed substantial marketing campaigns. Constantly updating her knowledge, Bara is committed to providing exceptional experiences and maintaining her position as a trusted professional in the industry.