What are structured settlements and when are they used?

Structured settlements are a financial used most often in handling the distribution of money from a settlement such as a lawsuit or injury claim. In a structured settlement annuity, the beneficiary receives regular amounts of money according to a regular schedule usually at regular intervals. Structured settlements are useful to secure the financial future of the retired, the young, or for those who are unable to handle large sums of money at once. For more detailed advantages and disadvantages of setting up a structured settlement, please read on.

What are some advantages of structured settlements?

Probably the biggest and most advantageous aspect of structured settlements is the tax benefit. If you take out a lump sum for the entire amounts, you will be liable for large amounts of state and federal taxes. With structure settlements, when set up correctly, each of the scheduled payments that you receive from the settlement will usually be free of state and federal tax liabilities. These tax benefits should weighed against whether you want the entire lump sum at once and the amount of interest you could earn from that lump sum.

If the claim victim receiving the settlement is not capable for being able to handle the responsibilities of having the entire lump sum at once, then the regular scheduled payments from a structured settlement can be helpful in securing the victim’s future. Regular payments of smaller amounts of money make the burden of money management easier and make the recipient of the money less of a target for con artists looking for a large one-time score of money.

Since the structured settlement provides regular intervals of cash to the recipient, structured settlement annuities actually provide an inherently natural vehicle for providing for someone’s retirement. Structured settlements also can be established and organized outside of court, as to avoid high court fees for in court decisions; lawyer and tax specialist fees for setting up a structured settlement are usually lower than any in court costs would be.

The flexibility of structure settlements are a great advantage. For a structured settlement with regards to payment schedule and amounts of each payment, they can get set up whichever way is desired as long as both parties involved in the settlement agree to the schedule. In fact, the payments do not have to be set up for a regular interval, and the amounts of each payment can vary. These flexibility qualities of structured settlements make them a powerful and effective vehicle for financial planning.

What are some of the disadvantages for structured settlements to consider?

While structured settlements offer many useful and great advantages, there are also some downsides to consider when making an informed decision about setting up a structured settlement. One is once the structured settlement is set up, it will be hard to collect large sums of money should you change your mind. You’ll have to sell all or parts of your future structured settlements to do it, and will have to give up parts of that money for the lump sum privileges.

Some people find that structured settlement payment scheduled restrictive and hard to change later once the schedule is set on even though it is fairly flexible in how you wanted to set up the schedule. For example, you cannot alter the schedule to receive a large sum of money if you are looking to purchase a car or a home. Some simply prefer to receive the entire lump sum of the entire settlement despite the large tax burden of taking the entire settlement, especially in cases where they think they can handle the money fine, whether through investing it or earning guaranteed interest payments on it.

What happens if someone changes his mind about setting up a structured settlement annuity and wishes to receive a lump sum payment?

Some structured settlement brokers and structured settlement companies will offer to purchase all or parts of remaining payments in a structured settlement for those who have changed their mind and wish for a lump sum payment especially with needs to make a large purchase such as a home down payment or a car. When opting for this structured settlement sale, the beneficiary should be aware of the cost difference in that the structured settlement buyer must make some money to cover his profits and fees for the transaction. Also, be sure only to deal with and make an informed decision with a trusted and reputable structured settlement company.

When deciding on whether to sell your structured settlement, you should get quotes from many different structured settlement companies and buyers. With more quotes and experiences of people who have dealt with different structured settlement companies, you can make a better and more informed decision about selling your structured settlement. You should also be fully aware of any tax liabilities, rules, and regulations governing the sale of the structured settlement in your area. You should consult a tax professional, lawyer, or adviser familiar with these structured settlement transactions so that you know the tax liabilities involved.