How To Understand Structured Settlement

Structured settlement is an agreement on settlement payments between a plaintiff and the defendant when the former agrees to file for the dismissal of the case in consideration for a sum of money to be paid by the latter.

In most cases, it is the defendant who makes the initiatial offer of a structured settlement to the plaintiff, in his interest to end the litigation of the case. With this arrangement, the plaintiff agrees to be paid in long-term installments instead of receiving a lump sum of money in a single payment.

Structured settlement is usually resorted to in tort cases in which the wronged party may seek damages from the offender for the personal injury that he (wronged party) has suffered. Also called annuity settlement, this payment arrangement is usually done by purchasing an annuity by the insurer, as assurance that payments will be made now and in years to come. The frequency of payments will depend on what the parties may agree upon--whether it be in annual installments within a certain period or in large amounts paid every year. Depending also on the gravity of the offense and on the basis of penalty to be supposedly imposed, structured settlement may take a lifetime in which payments will be made to the plaintiff as long as he is living, or only during a limited period of time until the whole amount as agreed upon is completed.

Laws on structured settlement are enacted in the United States through both its federal and state laws. Found in these laws are particular stipulations from the Internal Revenue Code. Because of its practicability, many advocates for the rights of disabled persons with disabilities stemming from injuries through negligence by another person continually endorse structured settlements. 

The person upon whose capacity the structured settlement is due must be a party to the complaint or someone who has agreed to make the payments to the plaintiff on behalf of the accused, as in the case of an annuity company. This mode of settlement payment has both advantages and disadvantages.

Structured settlements have the following advantages:

  1. They may effectively lessen the taxes levied on the plaintiff. There are even instances when annuities are totally free from taxes.
  2. They protect the receiver of settlements from the danger of outright expenditure of the lump sum money. The knowledge that a relative received a huge amount of money may push family members and relatives to expect a "share" from such bounty.

The disadvantages of structured settlements are:

  1. The periodic payment made to the plaintiff may not allow him to purchase properties such as a house and cars because the money comes in small distributed amounts.
  2. The plaintiff can't use the money in business investments due to insufficiency of funds.

Because of the aforementioned disadvantages of structured settlement, there are plaintiffs who practically sell their annuities. In some parts of the United States this practice is being discouraged because once again, the plaintiff might be taken advantage of by profiteering financing companies. But many recipients of structured settlement just shrug their shoulders to this prohibition. Hence, anyone may discreetly cash out the annuity he is due to be paid by looking for a buyer of structured settlements.


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