Structured Settlement – Pros and Cons

Structured settlement is widely popular within the United States and other regions of the world as a way to collect monies that are owed to you in smaller increments instead of one large sum. These types of arrangements can often work in favor of the person who is owed money for a myriad of reasons. First, let’s examine the basis of this settlement and what types of cases under the settlement can be most beneficial.

In most cases a structured settlement results from some kind of wrong doing on another’s part. They are often agreed upon in cases of personal injury when one party has placed a medical or financial burden or serious injury on another. In retaliation and in an effort to gain some peace of mind or financial help for the injuries sustained, the injured party will place a law suit on the party who has been deemed guilty as charged in a court of law or civil suit.

This is seen a lot within medical malpractice suits and personal injury cases such as vehicle accidents or on the job injuries. Basically this is an arrangement that is made between the defendant and the other party and is most often done by the injured party getting an annuity from the guilty party’s insurance company or estate. Usually it is written in a way that states there will be some sort of upfront payment and then a series of smaller payments over the course of the timeline or years as agreed upon between the injured party and the party who owes money.

What are the Benefits of a Structured Settlement?

A structured settlement works for many people because it guarantees them a certain amount of money every year or month for however long it takes to pay the balance in full. This agreement doesn’t work for everyone and whether or not one should agree to an arrangement such as this will vary and should be considered on a case by case basis. There are however many reasons why this settlement can be beneficial.

The first and most obvious is that it is guaranteed income and for many whom have sustained injury or wrong doing, the counted on check is a saving grace. Another good thing about this arrangement is that it can really benefit the injured party come tax time. Money is owed yes, but that doesn’t mean the government isn’t going to require you to pay their share for taxes. When a large sum of money is paid out to someone or collected upon, Uncle Sam wants his cut and the higher the amount one receives, the more taxes they have to pay on it.

Often with this settlement agreements the amount of taxes one has to pay are vastly lower than what they would have to pay with a onetime lump sum payment. It is also possible that with a structured settlement case that some of the taxes can be forfeited altogether. Consult an attorney who specializes in this area to help you understand the ins and outs of taxes and settlement laws and regulations.

For those who aren’t great with money and have a sporadic or irresponsible side, a structured settlement ensures that they won’t blow the lump sum all at once or within a short time span. The excitement of having a lot of money is enticing and there are countless stories about people winning law suits, getting their large payment at once and then being broke shortly therein after. Since the payment spans across years, the money may be easier to manage for some folks.

Finally, many structured settlement agreements are the only way an injured party can receive all they are entitled to. This happens when the party who owes the defendant doesn’t have the entire amount up front but can manage to pay the amount over time. This is seen in many person injury cases where the guilty party has insurance but not enough to cover the entire balance owed right away. Sometimes it is better to agree on a settlement and get all the money owed than to try and settle in court for a lump sum amount that the other party simply doesn’t have.

Downside to Structured Settlements

As with anything else, there are pros and cons to most situations and that is the case here as well.  The most noteworthy downside to this agreement is that once the contract is written and signed, it is a legally binding document and changes cannot be made. Whatever the agreement is, you are stuck with those terms for the life of the settlement. This is why it is wise to have a stellar attorney representing you throughout the process and to be present at the signing.

If the party who is owed the money is aged or terminally ill, unless it is written specifically within the agreement that the settlements must still be made in the event of death, that money once you are passed will not have to be paid. It is imperative that in these cases it is clearly defined within the agreements what your wishes are in the event of death and to whom the remaining payments will be paid after that time.

It is also possible that the paying party may pass away within the years that you are still owed and collecting money. Consult a professional as to how the payments will still be made in an event such as this such that this can be taken into consideration when the structured settlement is being drafted.