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Parties involved in handling physical injury cases know that lump-sum cash settlements are tax-free to injured parties. However, what is often not considered are the tax ramifications of the investment income on those settlement proceeds, which is taxable.
The party benefits most. When
the program is properly
designed, a structured
settlement focuses on the needs
of the injured party. The
structure guarantees tax-free
income, often for life, and
reduces the potential for
mismanagement of funds. Because
a structure is a guaranteed
source of funds paid on a
tax-free basis, it is very
difficult for even the
sophisticated investor to match
the rate-of-return generated by
a structure.
Click here to view tax
equivalency chart.
Injured party Attorney
By using the structured
settlement approach, the trial
attorney can be assured that the
client will receive guaranteed,
tax-free payments. The payments
are not vulnerable to
mismanagement by the injured
person, or unscrupulous
outsiders or market upheaval. An
additional benefit for the
attorney is that his or her fees
may also be structured or
deferred. In the end, the amount
of money one receives through
deferred payments is greater
than what one would receive from
a lump-sum payment, because
there is less taxation since
benefits may be received over
time. The payments provide a
steady stream of income, either
for a certain period or for
life, and make overall income
management easier.
Click here to view structuring
attorney fees.
Defendant/Insurer
Expenses associated with paying claims are eliminated. In addition, savings are realized by lowering overall administrative costs.
Defense Attorney
It provides the defense attorney
with another alternative in
negotiating a settlement.
The Bench
Judges universally support the
structured settlement concept.
It is especially appealing in
guardianship cases because
judges have the responsibility
of approving settlements. It is
clear to the courts that all too
often the injured parties
dissipate their awards, and
without other means of support,
become wards of the state.
Structured settlements protect
the person for whom the funds
are intended.
Click here to view minor case
example.
