BlogUncategorizedStructured Settlements and Disability Planning

Structured Settlements and Disability Planning


Structured settlements have become an increasingly popular solution for plaintiffs with long-term disabilities resulting from accidental injuries or medical malpractice. These customized financial agreements provide guaranteed income through scheduled payments over many years, often the recipient’s lifetime. The funds come from an annuity purchased using all or part of the plaintiff’s settlement amount from a personal injury or medical malpractice lawsuit.

For people facing lifelong challenges due to newly acquired disabilities, structured settlements can provide vital stability and resources for daily living expenses, medical costs, home accessibility modifications, and other critical needs. When utilized alongside supplemental planning tools like special needs trusts, structured settlements form the cornerstone of a comprehensive plan for financial security and healthcare funding over the injured claimant’s lifetime.

In this article, we will explore the key benefits of structured settlements for disability planning, how they can integrate with special needs trusts, and important considerations when weighing settlement options for plaintiffs with disabilities.

The Benefits Of Structured Settlements

Here are some of the most impressive benefits structured settlements offer:

Steady Income for Life

The greatest appeal of structured settlements for beneficiaries with disabilities is the guarantee of consistent income for the long run. Lump sum payments from lawsuits or insurance settlements can be quickly depleted, while structured settlement annuities are fixed income streams spread out over 5, 10, 20 years or even a lifetime. These lifelong structured payouts provide major advantages for individuals facing new disabilities that impact their ability to work and earn an income.

Payments Can Be Scheduled As Per Your Needs

Payment amounts and schedules can be adapted to the expected needs and living circumstances of the disabled plaintiff. This flexibility allows larger sums to be scheduled later in life when disability costs tend to escalate with advancing age and increasing medical interventions required. Conversely, larger payments can be positioned earlier to facilitate major purchases, like accessible vehicles or home modifications.


Having predictable structured settlement annuity income facilitates financial planning for daily necessities, medical costs, therapies, equipment, and disability-related home care expenses. It also reduces stress about making ends meet each month – a major burden lifted for those struggling with health challenges.

Tax Advantages

Another benefit provided by structured settlements is favorable tax treatment, especially compared to lump sum cash awards. If the payments originate from a physical personal injury settlement, the periodic structured payments are usually tax-exempt. For a beneficiary in a lower tax bracket, this may not make an enormous difference. But the tax savings can be substantial for larger settlement amounts that might otherwise push the beneficiary into higher tax margins.

These tax-free payments also mean the full structured payment is available to cover the multitude of disability-related costs rather than losing a portion to taxes. When coordinating government health insurance and income assistance programs for those with disabilities, maximizing available resources is vital.

Asset Protection

In addition to tax advantages, structured settlements also provide asset protection for the injured plaintiff. The scheduled payments are considered exempt assets in federal bankruptcy filings, shielding this income stream from creditors.

This protection helps ensure funds meant to provide lifetime care for a beneficiary with special needs are preserved solely for their intended purpose – financing daily living, medical bills, home healthcare, and other critical disability expenses. Unfortunately, financial mismanagement or creditor problems could too easily divert a lump sum payment away from supporting essential lifetime care.

Professional Money Management

Reputable structured settlement companies have financial experts experienced in managing tailored structured payment solutions for injured claimants. They take on responsibility for sufficiently funding the annuity purchase and directing the scheduled disbursements to approved recipients. This money management assistance benefits claimants with disabilities who may be unable to effectively administer large financial settlements on their own.

Integrating Structured Settlements with Special Needs Trusts!

Given their benefits, structured settlements naturally fit well alongside supplemental needs trusts designed to enhance the quality of life for individuals with disabilities without jeopardizing eligibility for public healthcare assistance. These specialized trusts administer funds and distribute resources only for purposes not covered by government disability programs like Medicaid and SSI.

When coordinating the two planning strategies, the structured settlement payments are routed directly into a first-party special needs trust rather than paid individually to the beneficiary. This prevents the beneficiary from directly controlling the structured settlement income, avoiding eligibility complications with government programs. The funds land securely in the trust instead, to be prudently managed and distributed by the trustee to enrich the beneficiary’s life while retaining public aid coverage for healthcare essentials.

The income stability of lifelong structured payments fuels the special needs trust, providing reliable funds for the trustee to expend at their discretion to benefit the disabled individual. Having an established revenue stream also makes special needs trusts more affordable since professional trustees charge fees based on a percentage of managed trust assets. Compared to privately funding trusts through lump sum allocations from personal assets, structured settlement installments minimize trust expenses over time.

Future Care Planning

Special needs financial planning looks towards beneficiaries’ long-term future when plotting lifetime care funding solutions. Alongside Medicaid and other government support, structured settlements provide clearly defined income that can be projected decades into the future. Predictable payment schedules facilitate advance budgeting for major disability-related expenses anticipated down the road. These could include home health aides, accessible assisted living facilities as the beneficiary ages, modifying living spaces to improve accessibility, specialized transportation options if driving becomes difficult, guardianship services later in life, funeral costs, and more.

If a disabled individual has a family that takes on caregiving responsibilities, remaining structured settlement funds can provide ongoing financial support if the beneficiary dies prematurely. Surviving spouses, children or parents may continue receiving annuity payments tax-free after the beneficiary passes away. This provides the caregiver family member long-term income in recognition of intensive daily care services previously provided to the beneficiary before their death.


In conclusion, structured settlements provide guaranteed streams of lifelong income that offer financial stability for plaintiffs facing long-term disabilities. The value goes beyond dependable funding for daily costs or securing caregiver wages for devoted family members. Integrating structured payments into robust special needs trusts administered by expert advisors also retains access to needs-based government healthcare benefits and enhances quality of life through prudent supplemental expenditures.

However, securing structured settlements and properly aligning special needs trusts does necessitate specialized legal guidance. The complex intersections between government disability programs, lawsuit damage awards, tax implications, estate recovery regulations, and more mean seemingly small miscalculations could have catastrophic consequences. But structured thoughtfully alongside supplemental needs trusts and other planning tools, customized structured settlements give beneficiaries with special needs and families support their financial security, healthcare access, and enriched lifestyles for years to come.


What section of the tax code applies to structured settlements?

Under Section 104(a)(2) of the Internal Revenue Code, structured settlement payments for physical injury or sickness are income tax-free. This tax-exempt treatment increases the net income available to help cover costs related to an injury or disability.

Who decides how settlement money is used for structured payments? The Insurance Company?

The plaintiff entering into a settlement agreement has primary control over how the proceeds get utilized, including how much goes toward purchasing structured payments versus receiving cash. However, a judge must approve settlements involving minors, and adult guardianship may be required for mental incapacity.

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