Settlements are common in personal injury lawsuits, class action lawsuits and product liability lawsuits because they serve the needs of the plaintiff and the defendant in the lawsuit. The plaintiff received financial support or compensation while the defendant limits their own liability and keeps their case out of the public courts. In many situations, rather than accepting a large lump sum, a plaintiff will actually receive and structured settlement. This means that the plaintiff will receive a fixed amount of money at regular intervals from the defendant and it can benefit the plaintiff by offering both stability and tax benefit.
When large settlements are covered in the news, most people only focus on the massive dollar amounts when in reality if a plaintiff took receipt of funds won in a settlement in one lump sum they would be heavily taxed. In fact, most professionals involved in the personal injury world will recommend structured settlements every time because they are to everyone's benefit. Structured settlements can be managed in a variety of ways.
One of the most popular methods of managing a structured settlement is through a fixed annuity. In a normal fixed annuity, the individual will take a large sum of money and invest it by buying an annuity with an insurance company or financial institution. They then receive a fixed amount of money at regular intervals for a given amount of time. In the case of using a fixed annuity for a structured settlement the defendant will purchase the annuity for the claimant. The plaintiff then receives structured payments gaining preferential tax treatment and security for their long term financial situation. Additionally, structured settlement annuities often end up yielding more money in the long term and they prevent financial mismanagement of a large settlement. The defendant benefits because they reduce their costs by avoiding costly court fees, they can usually offer a personal injury settlement or workers compensation settlement that meets the expectations of the plaintiff and they can remove the financial liability from their own records by creating the annuity. Annuities are particularly popular for cases relating to personal injury, car accidents, medical malpractice and workers compensation.
Another method of handling structured settlements is through Special Needs Trusts. In the case of an individual who has been permanently incapacitated and the structured settlement will support them into the future, a special needs trust can be established to ensure that the monies are properly handled and distributed and it typically paves the way for the disabled individual to qualify for Medicaid benefits as well. Property and payments can be incorporated into a trust to ensure that the person can use property and receive support without fear of the money being compromised or taken advantage of by any nefarious individuals, especially in the case of someone who is not capable of managing their money.
Structured settlements, fixed annuities and settlement trusts are all methods which benefit all parties in the long run. There are many institutions that advertise the ability to "cash out" structured settlements and although the lump sum may be convenient at the time, the claimant will end up losing money in the long run and from a tax perspective. If you are faced with the decision about accepting a structured settlement, you should make sure that your case is being handled by a reputable personal injury attorney, workers compensation lawyer or product liability lawyer to make sure that you are treated fairly and receive the compensation you deserve.