The Complete Mechanics Behind Structured Settlements

Where did you first come across the word ‘structured settlements’? Was it late night television ads where they spoke of immediate access to your money? You must have often heard them exhorting “It’s your cash! Cash in your structured settlement and get immediate access to your money!” If you were a successful plaintiff in a lawsuit, your relation with structured settlements must have been a personal one. You may have received one or you may have been evaluating one now.

But what should you know about structured settlements? Even when you already have one, you may not how to operate and why they’re set up in the arcane fashion. Well, the fact is that like so man other things in the world, structured settlements mostly deal with taxes.

Periodic payments vs. cash: Suppose you’re injured in a car accident and you receive an amount of $300,000 settlement from the driver or the insurer, this money is totally tax free. However, whenever you invest the $300,000, the earnings from the investment become taxable. If you receive a structured settlement instead of the cash, you will be able to get payments over a term of years or throughout your lifetime, as you may wish to get. Each payment will be fully tax free. Thus a structure can easily be converted after your tax-earnings into a totally tax-free return.

The structured settlement brokers usually consult as a case approaches settlement. Brokers are paid commissions by the life insurance company that issues the annuity. Brokers can run many projects based on the terms of the years, payments over your life or over your joint life (when you’re married). You can also call for no payments for about 10-15 years and then start receiving them and using them to fund your retirement.

Thus, we see that structured settlements are extremely flexible investment vehicles. However you need to know the issues before signing the settlement agreement in your case. With all the important facts on structured settlement, they can be set up properly.

Structured settlement – The mechanics

Did you know that the tax benefits won’t work if you own the annuity policy? Instead of paying the cash to you or to your lawyer, the defendant will send the money to the subsidiary of a life insurance company called an “assignment company”. The assignment company will purchase the annuity from the parent life insurance company and the assignment company will thereby hold the policy and give you monthly payments as per the requirements of the contract.

Structured settlements are also tax efficient and they can also have asset protection and some other advantages too. Apart from their tax-deferral ideas, their results are pretty impressive for the longer term. They are not for everyone and one shouldn’t structure each and every nickel that you receive. Once you set them up, they can’t be changed.

So, if you have won a lawsuit and you’ve received a big amount of structure, you can do the needful in order to make money out of it and also save taxes at the same time. Get in touch with a financial advisor if you think you need help.

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