A structured settlement provides ongoing tax-free income to an injured claimant through scheduled payments over time. This provides financial stability compared to a lump sum payment that can be quickly spent. However, structured settlements lack flexibility to access immediate funds after the terms are set. That’s where the option of selling structured settlements comes in!
Here I’ve covered everything about structured settlements – how they work, benefits and downsides, when to consider selling your payments for a lump sum, and what to know before you cash out through a factoring company for immediate funds.
Whether currently receiving periodic payments or debating future options after settling a lawsuit, use this as a resource to understand structured settlements so you can make the most informed decisions.
What Is a Structured Settlement?
A structured annuity settlement is a negotiated financial or insurance agreement providing long-term periodic payments to resolve a personal injury claim. Payments are made through an annuity funded by the defendant’s insurance company.
Structured settlements originated in Canada in the 1960s and became popular in the U.S. after Congress passed the Periodic Payment Settlement Act of 1982 in the 1980s making these payments tax-free. Today over $10 billion in structured settlements are issued annually in the U.S.
With a structured settlement, an injured claimant gives up the right to pursue a lawsuit in exchange for a series of payments over months or years. This provides financial stability compared to a single lump sum, which could be quickly spent.
The Benefits of Structured Settlements
There are many advantages of structured settlements, mainly relating to financial security.
A structured settlement payment continues for a fixed period or even for life, guaranteeing stable income. This ensures funds will be available to pay medical bills or daily living expenses.
Structured settlements allow flexible payment schedules tailored to individual needs now and in the future. For example, funds can be set aside for a child’s college education.
Unlike investing a lump-sum settlement, structured payments are income tax-exempt under federal Internal Revenue Code (Section 104(a)(2)). All interest earned also accrues tax-free.
Structured settlement payments are generally exempt from seizure by creditors. This offers further financial safeguards.
Structured settlement benefits remain unaffected by stock market fluctuations, economic downturns, or poor investment decisions.
Receiving settlement money over an extended timeframe often deters impulsive and inappropriate spending compared to getting a windfall all at once.
Defendants may offer a structured settlement periodic payment if they cannot afford a large lump-sum payout. This mutual arrangement helps avoid protracted litigation.
Common Uses of Structured Settlements
Structured settlements frequently resolve cases involving:
Structured settlements provide stable income over decades, making them well-suited for lifelong medical care or replacing lost wages.
How Does A Structured Settlement Work?
While your future periodic payments may seem complicated, there are just four parties in the typical process in the United State Of America:
The Claimant
The injured plaintiff who sued the defendant and agreed to structured settlement payments.
The Defendant
The at-fault party (or their insurer) responsible for funding the settlement through an annuity contract.
Assignment Company
A third-party company that assumes responsibility for annuity payments to the injury victim or claimant.
Annuity Issuer
A life insurance company that provides the annuity to fund the ongoing structured settlement payments.
Typical Structured Settlement Process
So in practice, structured settlements take damages full circle back to the injured party under an ironclad payment arrangement.
Customizing Payment Options
The best benefit of structured settlements is customizing the payment schedule.
When Payments Start
Claimants, with the help of a structured settlement broker can decide to receive funds immediately or defer payments for years. Deferring allows interest to accrue tax-free.
Payment Frequency
Typical intervals are monthly, quarterly, semi-annually or annually. Faster payment cycles provide more frequent income.
Number of Payments
Settlements may specify a fixed number of payments or continue for life. Lifetime payments maximize financial security.
Increasing Payments
Payments can rise steadily to offset inflation or increase with milestones like birthdays. This helps maintain purchasing power.
Lump Sums
Arrangements often combine a partial lump-sum payout upfront followed by ongoing periodic payments. This meets immediate needs while retaining future income.
In short, almost any payment arrangement is possible with structured settlements. Your main work is understanding current and future financial responsibilities and goals.
What to Consider Before Accepting a Structured Settlement?
While structured settlements alleviate stresses of receiving a windfall payout, they limit financial flexibility. Important considerations include:
Immediate Financial Needs
If facing pressing expenses like medical bills, deferred payments may not help in the short term. Ask about an upfront lump-sum component.
Loss of Investment Opportunities
An investor may forfeit higher returns from a diversified investment portfolio than fixed annuity rates offer.
Changes in Financial Standing
If your means substantially improve thanks to an inheritance or new career, periodic payments could become unnecessary.
Time Value of Money
Receiving $100 today is preferable to $100 five years later since money presently available can earn interest or returns. Structured settlements pay more overall but delay funds.
Loss of Control and Ownership
You cannot access funds early, borrow against payments, or change terms. The annuity issuer maintains full authority.
Fees and Expenses
Administrative fees, insurance premiums and setup costs reduce payouts. Reputable structured settlement consultants fully disclose such expenses.
For these reasons, always consult an experienced legal or financial advisor before finalizing a structured settlement or selling off these payments.
Alternatives Of Structured Settlements
Depending on case circumstances and individual factors, alternatives like these also deserve consideration:
Lump-Sum Settlements
Opting for an immediate payout allows you to decide how to use funds through investments or paying off debts. However, better money management skills are essential.
Lifetime Annuities
Privately purchased standard annuity contracts offer guaranteed income without needing to win a lawsuit. Payouts continue for life or a set period.
Special Needs Trusts
If physically or mentally incapacitated with no close family, establishing a trust ensures settlement monies are professionally managed and solely used for your welfare.
Selling Your Structured Settlement Payments
Despite inherent safeguards structured settlements offer, life unpredictably changes. Unforeseen expenses arise. Financial mistakes happen. People grow dissatisfied with fixed payments. Should any such issues emerge, you do have options even after signing an ironclad settlement agreement. Structured settlement payment rights allow recipients to sell their future payments even after signing rigid settlement terms.
Factoring companies like Fairfield Funding buy future structured settlement payments in exchange for an immediate discounted lump-sum cash payout based on the present value of the remaining payments. This empowers recipients to use funds now based on their current needs despite relinquishing the full original settlement value.
As an established industry leader, Fairfield Funding makes competitive offers based on your unique situation.
We simplify the court-approval process for selling settlements while charging below-average fees. Our team smoothly guides clients through every requirement so you can receive funds promptly.
Common Reasons People Sell Their Structured Settlements!
These life events and circumstances cannot always wait for periodic settlement checks. By getting cash for structured settlements, you regain financial flexibility after signing rigid structured settlement terms.
Finding the Best Factoring Company to Work With!
If considering selling your future structured settlement cash, conduct thorough research beforehand.
Not all settlement purchasers are equal.
Look for these traits in reputable structured settlement buying companies:
Avoid buyers pressuring you or charging 20%+ discount rates. Discount rates refer to the percentage that factoring companies use to reduce the total value of future settlement payments when calculating their upfront lump-sum payout amount. For example, a 15% discount rate means the buyer will offer 85% of what all remaining payments are worth over time.
Calculate discount rates into your decision along with what future settlement payments are worth over time. Then compare against immediate financial needs if you were to cash out through a factoring company. Knowing the impact of discount rates allows you to better weigh available options. Reputable companies charge reasonable discount rates between 5-15%.
Above all, read all contracts thoroughly and consult an attorney skilled in structured settlements before finalizing a sales agreement or signing any paperwork.
Don’t just take our word for it – Experience our outstanding service yourself!
Understanding the Court Approval Process
The Structured Settlement Protection Act is a federal law designed to protect individuals who choose to sell their settlements. This legislation requires court approval before any sale can take place, ensuring that sellers understand what they’re agreeing to and aren’t being taken advantage of by unscrupulous buyers.
As a result, judges scrutinize all structured settlement sales to ensure terms are reasonable and in the seller’s interests. Requirements typically involve:
Reputable factoring companies shepherd clients through meeting every court prerequisite. Fairfield Funding stands ready to make this process smooth and efficient so you can receive your lump-sum payout faster.
Tax Consequences of Selling Structured Settlement Payments
In most cases, no federal tax applies provided the original personal injury settlement is tax-exempt. State laws follow the same principles. Consult a tax expert regarding your specific structured settlement and proposed sale.
Payouts from settlements not tied to physical injury may incur income tax on the transaction depending on state statutes. Punitive damages also often carry tax liabilities that factoring companies must report to the IRS.
Weighing the Pros and Cons of Selling Your Structured Settlement
Depending on your personal financial situation and reasons for needing money now, the benefits of selling structured settlements likely outweigh giving up future income you initially agreed upon. Still, consider drawbacks too:
Potential advantages of selling your structured settlement annuities include:
Downsides may involve:
Fairfield Funding helps educate consumers so they can carefully weigh options, avoid risks, and make informed decisions aligned with their objectives.
Alternatives to Selling A Structured Settlement
If hesitant to sell your future payments, investigate these options first:
Consult experienced financial advisors too. They may identify alternatives like tapping savings, liquidating assets, claiming Social Security benefits early, or transferring payments to a charitable organization.
Answers to Common Structured Settlement Questions
Review responses below to frequently asked questions for further insights into structured settlements and your rights around these negotiated legal arrangements.
Want To Sell Your Structured Settlement?
Structured settlements provide invaluable future income assurances to injury victims needing lifelong care or income replacement. Customizable, tax-favored periodic payments ensure settlements stretch further over time too compared to individual investments.
Still, fixed schedules deny flexibility to access funds despite changing life circumstances.
However, Factoring companies like Fairfield Funding address this cash flow challenge. We supply lump-sum payouts to consumers wanting to sell some or all future payments in exchange for immediate financial relief or pursuing new opportunities otherwise unavailable.
Fairfield Funding sets itself apart through low fees, easy processes and a dedication to customer interests when buying structured settlements.
If considering selling your future payments from a legal settlement, contact us today for a fast, no-obligation quote. Our experts make it simple to turn payments you no longer want into cash sent quickly to empower your dreams.
