Here’s
how the structured settlement
concept works. A structure is
simply a stream of tax-free
secure periodic payments
designed to meet the financial
needs of the injured party.
Typically, future income and
upfront cash for attorney fees,
medical expenses and related
liens are included in the
package.
The defendant or its insurer
agrees to make future payments
to the injured party. In most
instances, the defendant’s
insurance company then funds its
obligation by purchasing one or
more annuities from a
highly-rated life insurance
company which makes the payments
to the injured person. These
payments may be made for any
length of time, even for the
individual’s lifetime. In the
event of the injured party’s
death, a guaranteed portion of
the settlement may be made to
the estate or a named
beneficiary such as a spouse or
child.
Role of the Structured
Settlement Broker:
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This structure broker can assist
in explaining the advantages of
a structure’s guaranteed income
over the inherent risk of
fluctuating interest rates and
investing large sums of cash.
Click here to view Tax-Free, Secure Settlement. Obviously, the
structured settlement broker
with access to the most life
companies will be in a position
to offer a very competitive
annuity price. Experienced
settlement annuity brokers from Ringler Associates can design a
package tailored to each
individual’s needs. This might
include: upfront cash for
attorney fees and medical
expenses; and one or more
annuities providing periodic
payments for future medical
care, college funds for
dependents, spousal support,
retirement income or even
mortgage payments.
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The
flexibility of the structured
settlement proposal is limited
only by the creativity of the
structured settlement broker and
the information provided. A
knowledgeable broker should be
willing to sit down with the
injured party to ascertain the
situation and exact needs.
Thorough information translates
to a better settlement package. The structure broker designs
proposals that will fund the
injured party’s needs with a
secure, tax-free stream of
future payments. The services
provided by these experts
include analyses and life care
plans which define the needs and
costs for the injured party’s
needs and assist in resolving
the case.
Because a structured settlement
is a guaranteed source of funds
paid on a tax-free basis, it is
very difficult for even an
experienced investor to match
the rate-of-return generated by
a structure.
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Because a settlement
annuity is a guaranteed
source of funds paid on
a tax-free basis, it is
very difficult for an
investor to match the
rate-of-return generated
by a structured
settlement. The table
below illustrates how
much additional interest
an investor would have
to earn in order to
match the before tax
rate of return offered
by a structure, assuming
the current tax
brackets. The table
below illustrates the
before tax
rate-of-return required
to match the return
offered by a structured
settlement.*
|
Structure Return Rate |
Tax
Brackets |
|
|
|
|
|
|
|
10%* |
15%* |
25%*
|
28% |
33% |
35%* |
|
4.5% |
5.00 |
5.29 |
6.00 |
6.25
|
6.27 |
6.92 |
|
5.0% |
5.55 |
5.88 |
6.67 |
6.94 |
7.64 |
7.69 |
|
5.5% |
6.11 |
6.47 |
7.33 |
7.64 |
8.21 |
8.46 |
|
6.0% |
6.67
|
7.06
|
8.00
|
8.33 |
8.96 |
9.23 |
|
6.5% |
7.78 |
7.65 |
8.67 |
9.03 |
9.70 |
100 |
* Figures would be even higher
with state and local taxes.
In order for an
injured party to earn
the 6 percent return
rate of the structured
settlement, he or she
would have to earn an
additional 3.23 percent
on the cash investment
at the 35 percent tax
bracket (9.23 % less 6.0
%), an additional 2.33
percent at the 28
percent bracket and 2.0
percent more in the 25
percent income tax
bracket. That’s a lot of
interest to earn and the
self investor would
still have to subtract
any local and state
taxes, as well as the
related brokerage or
investment fees.
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CASE EXAMPLE
Property Damage / Bodily Injury
Several people were killed in an explosion which damaged a city building.
After subtracting attorney fees from the settlement funds, the surviving families members were left with
about $9 million. However, from
that $9 million, the city was
owed approximately $2.4 million
for damages. In the end, a dozen
families were left with only
$6.6 million in settlement
funds.
In order to provide the families
with as much money as possible,
the structured settlement broker
asked city officials if they
would agree to take their $2.4
million in five periodic
payments instead of a lump sum.
The city agreed to defer
payment. The five annual
payments of $480,000 to the city
reduced the cost of the property
damage portion of the settlement
which freed up additional funds
for the families. By obtaining a
special quote and bundling the
annuities, the structured
settlement broker from Ringler
Associates not only helped to
conclude the case but was able
to provide the families with
more money than they would have
received in a lump-sum
settlement. And all of their
funds would be guaranteed and
tax free.
Creative thinking, asking
questions and listening can lead
to a more beneficial outcome for
all parties involved in the
settlement process. The
structured annuity to the city
provided a savings of $340,000
that was distributed to the
families of the decedents, all
of whom were residents of the
city. Click here to see the
Dissipation Stats.
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