Considerations of Structured Settlements at the Close of the Injury Case

This blog concerns the issues relating to structured settlements. A structured settlement is a long-term payout. In the appropriate circumstances with certain clients, it should be given consideration. It is essentially an annuity. Because the payouts are made over time, perhaps decades, you need to make sure the funds are being paid by a sufficiently capitalized corporation, one that will be around to make those payments in the future.

Assuming that the structure is in fact being placed with a solvent company, and that it is guaranteed by another solvent company, there are two times where I would recommend a structured settlement to a client. The first is if the client is at risk of spending money in a hasty manner. Hopefully, that client will recognize the need to be protected and opt for the assurance of having money in the future. It becomes something of an allowance. This necessitates an honest discussion between client and attorney. The second advantage of a structured settlement is dependent on interest rates. This is less of an advantage in the present day than it used to be, as interest rates are quite low as compared to those of other decades. Even with lower interest rates, the payouts over time will reflect the interest accrual, however large or small they may be.

There is an additional tax advantage of a structured settlement. When you settle a personal injury case, the money paid to you is tax-free, but any growth from thereon is taxable. With a structured settlement, however, the entire income stream from the structured money is not taxable. To gain the tax benefit, there cannot be something known as “constructive receipt”, a concept to discuss with your lawyer or accountant.

The solvency of the insurance company (and the company guaranteeing it), the chance that some people may not be careful with a one-time payment of money, and the slight tax advantage (even now) of an income stream down the road are all important factors to consider when deciding whether to take a structured settlement. Though it may not have the same advantages these days, a structured settlement can at least be worth considering as part of your case’s resolution.