Structured Settlements – What are they and what is important to know

By definition, structured settlements are structured cash payments through an annuity system that is established to compensate injury victims for a loss. Structured settlements are the other alternative payment system to a lump sum cash settlement and are set up to provide payments to you over time.

Now in plain English, when you sue a person or a business for harm caused to you or to a loved one due to negligence or misconduct, such as a car accident, wrongful death lawsuit or a medical malpractice lawsuit, you might be offered a settlement. Alternately, a judge might rule in your favor and award you a sum of money. In both cases, the payout to you can occur in many different ways. One of the options is a structured settlement.

You have the option of taking a cash payout or have your payments spread out over a designated extended time period.  The time period of the payments can be setup on a monthly, yearly or (often a lifetime) instead of a large single payment. The structured settlement is a way of protecting the victim from economic loss and hardship, while also making the payout more palatable to the defendant.

Structured settlements received special legislative treatment by the U.S. Congress in 1982, as a way to make large settlements more agreeable to parties and provide certain protection to victims.

Many people now choose a structured settlement agreement over a lump sum distribution, and courts often award them in civil actions where there will be long-term costs of living and the necessity for obtaining cash payments at some point in the future.

One of the most important aspects of entering into structured settlement is to determine what is best for you and in some cases your family and dependents.  As in any financial transaction there are tax and liability options that you need to be aware of. Therefore, it is highly recommended that you seek out legal or financial advice from an accountant or lawyer experienced in tax matters about any income tax consequences that may result.