Structured Settlements Authority

Rethinking Structured Settlements

A Structured Settlement May Not Be the Right Answer

The Role of a Structured Settlement Company

If you have been a victim of malfeasance, have been severely injured and are no longer able to physically work, you may be offered a structured settlement as compensation. This is the point where a structured settlement company can play a vital role. Settlement companies have demonstrated their ability to reduce the rising costs of personal injury settlements and costly litigation. These companies help facilitate the settlement claims in a quick and efficient manner, in many cases eliminating the need for time consuming and costly litigation. By fostering an agreement focused on the victims future needs in constructive manner less money is wasted on litigation which leaves more funds available for the beneficiary. In a structured agreement a series of settlement payments are paid over time as an annuity rather than as a cash lump sum. This arrangement helps to prevent the dissipation of funds, which often occurs in cash settlements, and provides guaranteed benefits that will be available for the beneficiarys future needs.

Roles played and action taken by the settlement specialist during each step of the structured settlement process:

The specialist will review the entire claim file and help document and define existing and future damages. The focus is on the plaintiffs future needs and making a recommendation of how a series of periodic payments can be used to meet those needs and also facilitate the settlement process. A complete estimate of the future medical expenditures and loss of earning capability is included in this complete analysis of anticipated needs. This is especially important in catastrophic cases where the injuries sustained deprive the victim the ability to physically work.

The structured settlement company will also look for and then assess medical information related to impaired life expectancy due to the accident. This impaired-life rating is important in that it may enhance the benefit stream to the beneficiary since their life expectancy has been reduced. While this calculation may sound morbid it is important. Having a 30 year annuity with lower payments is of less value to a person with a life expectancy of 15 years. They would be better served by a 15 year structured settlement with higher benefit payments.

After all the constraints have been identified, a specific proposal is developed. Structured settlements are completely customizable and the payments can be structured to precisely fit the needs of an individual case. This is one of the many benefits of structured agreements. A well written proposal will address the liability of the defendant and the specific needs of the claimant.

The proposal is used as a starting point in the structured settlement negotiation process. The settlement specialist can provide assistance throughout the negotiation process by provide their perspective and judgment which they have gained through years of training and experience.

After the structured agreement has been reached various legal documents will need to be prepared. This will involve a series of reviews and each time the draft will be modified until the final version has been reached and the documents can be released.

Selling Future Payments is Costly and Hard Work

Sure, it is exciting to fanaticize about receiving a large sum of cash for selling your structured settlement payments but few people who have not done this before realize effort and costs involved.

Financial institutions known as Settlement Companies or Factoring Companies are in the business of buying the rights to receive future annuity payments under structured agreements. Make no mistake; they are in this business to make a profit so you need to know what you are doing and also to make sure you get the right legal and financial advice.

When you receive an offer that you consider to be sound, have your attorney review it and to explain the legal requirements to you.

The process of selling requires quite a bit of paperwork and will take several months to complete. If you are promised faster results, be on your guard and carefully review what is being offered. The settlement company is not in control of all of the steps in the process so they cannot realistically promise a schedule or date.

IRS Tax requirements and federal laws will require that you go to a state court and have the sale of your structured payments approved by a judge and court order before you will be able to sell. The judge will have to verify that the sale is in your best interest before he will approve the transfer. Federal laws will impose stiff tax penalties on any sale of transfer that occurs without a court order.

Even if your sale is approved, you will only receive a discounted portion of the value of your future payment rights. Getting cash for your structure settlement now can be very expensive. The amount you are offered is affected by many variables. The risk or rating of the insurance company making the offer, the timing and amount of your future payment rights will all affect the amount you receive.

Finally, many people do not realize that they do not have to sell all their annuity payments at one time. The purchase can be structured in multiple ways. For example, you can sell a specific number or percentage of your structured payments all remaining payments or you can simply sell them all. The choice is yours to make.

Reasons NOT to Sell Your Structured Settlement

There are many companies who will encourage you to sell structured settlements for cash lump sum payments. These companies offer their clients liquidity and immediate access to a discounted portion of their money. There is nothing wrong with this and these factoring companies operate under the authority of federal and state regulations, which were put into place to protect the sellers. It is understandable that there are times when it might make good sense for an individual to sell their annuity but it is not automatically the best decision and there are times when it is probably not the right decision.

The following are examples of times when it is probably not a good idea to sell.

When you do not have an urgent need for the money or a good opportunity to invest it. You would not want to sell your annuity at a discount if you had no reason to do so or could not invest it a higher rate of return.

When the beneficiary of the structured payments is a minor or a person mentally unfit to make the decision to sell. An example would be a person who had been incapacitated or suffered a brain injury as a result of the accident.

If the settlement payments are your only source of income, it would be very risky to sell your rights to receive future payments and then take on the added responsibility of managing a large cash sum.

If your structured agreement consists mainly of future lump sum payments that are more than five or ten years away, it would be very costly to sell since the amount you would receive for them would be very small due to the time value of money.

If you have significant debts or back taxes, when you sell your payments part of the sum may be garnished or taken from you to settle those claims. When you are receiving a stream of payments for living and medical expenses the potential for this happening is much smaller.

These are a few of the more common reasons why you would not want to sell your structured settlement payments but there can be many more. Because of this, it is wise to seek sound financial and legal council before making important decisions like this. Be cautious and be on guard for high pressure tactics by companies to get you to sell. You should never be made to feel uncomfortable or pressured to sell or do anything other than what is in your own best interests. Fortunately there are legal safeguards that have been put into place to protect the seller and any sale will have to first be approved by a judge before it can take place or else it will be subject to a penalty tax.

Alternatives to Large Cash Settlements

There has been much media attention in recent years about court cases that result in large cash settlements. In both popular culture and in legal circles, large monetary judgments have become the most talked-about aspect of the American legal system. These huge awards have even been featured in movies but attention is seldom focused on what is in the true best interest of the beneficiary. Is a cash settlement the only possible form of compensation? Is a having a large cash lump sum payment really in the best interest of the injured person?

The reason for these questions may not be obvious to you at first but they should be real concerns for many individuals involved in settlement claims. Often times the injured party is young with little knowledge of business or how to manage money. In other cases involving sever physical impairments or brain injuries the settlement recipient may not be adequately trained or prepared to handle the problems associated with large cash payments. Over a lifetime these individuals will require a lifetime of expensive medical care as well as a replacement form of income. Relying on their own limited knowledge, the advice of family members or self serving friends who leach themselves to these individuals, can result in a long term financial disaster and the complete loss of benefits.

Because of these concerns, and in a broadly supported effort to protect these individuals, new legislation was passed to provide protection. A new form of compensation called a structured settlement was created to provide an alternative form of settlement resolution. As an incentive to encourage the use of structured settlements, congress added a provision to the federal tax code that offers structured settlement payments tax free status.

Under a structured settlement, the injured individual and or parents or guardians work with an attorney and an outside settlement broker to determine their long term medical and living needs. They would do their best to identify future needs such as planned operations, ongoing medical treatments and rehabilitation. As part of the structured settlement, an annuity would be purchased from an independent party such as an insurance company who would then make the future payments to the individual. Under the provision of the tax law and appreciation or interest on the structured settlement payments is completely tax free. Because of this tax exclusion, over time the annuity will grow faster and be able to provide an after tax return few other investments could match. Properly structured, these settlement agreements can provide the recipient with annuity payments for their future needs and will give them peace of mind as well.

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