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What is a structured settlement? A structured settlement is when you successfully bring a lawsuit against a company for negligence or another form of wrongdoing. The typical outcome of such a suit can either be a judgement in favor of you, loss for you, or a settlement. Structured settlements can also be referred to as ‘structured settlement factoring’.
In the case of there being a settlement in your favor, the party you are suing agrees to pay you an amount that is less than what you were originally seeking, in lieu of taking the case to court and incurring more expenses. It is often more affordable for the defendant to settle. In the case of a structured settlement or judgement in your favor, there are two options. The first is that you can receive your structured settlement in a lump sum structured settlement. The second is that you can receive it installments over a period of time. The second option is known as a structured settlement. Since the early 1980s when Congress made qualified structured settlements more agreeable to defendants due to various tax provisions, what is known as qualified structured settlements have become increasingly common.
Structured settlements vary in their configuration, ranging in complexity from a simple once-yearly payment to configurations that involve a combination of a one-time lump sum payment followed by monthly, indexed payments, deferred payments, or other payment options. The defendant usually purchases an annuity from an annuity or insurance company for a fixed price that they pay upfront. It is that annuity that provides the payments in accordance with the terms outlined in the settlement agreement.
The advantages of a structured settlement are many. First, the annuity will guarantee income payments to you. Compare having monthly payments which ensure income to a one time, lump-sum payment, which will require you to manage your money effectively as well as pay taxes faster than you would have had to. A structured settlement also offers various tax benefits. It may be possible for you to reduce the amount of taxes you are required to pay on any investment income rather than having taken a lump-sum payment.
The decision to opt for either a structured settlement or a lump-sum payment depends largely on one’s money-management skill and personality. As we have already mentioned, receiving a lump-sum payment will require you to manage your money yourself. If you are the kind of person to spend money that should be paid on bills, you may burn through your money too quickly, leaving you with nothing left in a year or two (if not sooner). If you are this type of person then a structured settlement can be a kind of “forced” budgeting that will encourage you to spend at a more responsible rate. On the other hand if you are a responsible business owner, having that money in hand in the form of a lump-sum payment will allow you to expand and grow you business.
There are some things to be aware of before agreeing to a structured settlement. First, the terms of the settlement are carved in stone and cannot be changed later at a later date. Because of this fact, it is imperative that you have a good lawyer whom can effectively negotiate terms that best suit your particular situation and needs.
What is a structured settlement? A structured settlement can come in many forms as it be configured in many different ways to meet the circumstances of your life. Ask yourself ‘what are my needs’ and consider your habits and individual set of circumstances before finally settling your case. A structured settlement in the form of a lump-sum payment can be a blessing as can deferred payments.
Here at SYSS our blog writers are always working hard to bring you new information on structured settlements, annuities, and lottery winnings. Because of this we plan releasing a series of articles on the same topics as we have with “What Is A Structured Settlement”.