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Taxation with structured settlements

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What is the structured settlement and how does it work?

 

A structured settlement is generally a legal agreement between a claimant and a defendant to resolve a tort claim in which the plaintiff agrees to resolve the claim either through a court proceeding or through a non-judicial process such as negotiation. Structured settlements were first used in personal injury cases in which victims of injuries from car accidents or other accidents were able to receive some form of settlement. For instance, if you were awarded millions of dollars after being wrongfully held liable for hospital expenses, your personal injury lawyer could have a structured settlement as part of your compensation. Structured settlements are not, however, a common element in almost any form of a civil lawsuit.

 

Why would a litigant agree to a structured settlement instead of going through a traditional court proceeding?

 

In many personal injury cases today, the victim who has been wrongfully injured is often unable to pursue a case to which he or she may be entitled on a one-time basis. This means that in these instances, the victim must agree to accept a set-aside, which allows him or her to divide the money that is awarded to him or her in equal parts on a weekly or monthly basis, depending upon the particular agreement. However, it can also mean that the victim may receive less than the agreed amount should the case go to trial. It also means that the claimant’s medical expenses are not covered until the full amount of the settlement has been set aside.Why would a litigant agree to a structured settlement instead of going through a traditional court proceeding?

 

It is worth noting that the courts take into account the value of tax benefits when deciding whether to grant settlement money. For instance, if a litigant receives a large tax break for accepting a structured settlement, then it may be more lucrative to him or her to accept a structured settlement. As such, the courts will attempt to restrict the tax liability of the parties involved in cases where they both have an interest in a tax liability being reduced. By having the proper tax advisor represent personal injury plaintiffs on a regular basis, personal injury plaintiffs can avoid paying unnecessary taxes on settlement money.

 

Advantages of Structured Settlement

 

Structured settlements are very popular and can provide you with a steady stream of income for many years to come. However, you may not be aware that there are many benefits of a structured settlement and the main reason is that they are much better than lump-sum payment plans. With this type of payout plan, you are guaranteed to receive payments over a period of time and you also don’t have to worry about interest rates. This is one of the main reasons that people prefer to get structured settlements because they offer peace of mind along with a steady income stream. Here are some of the other benefits of structured settlements:Advantages of Structured Settlement

 

1- Guaranteed Payments

 

One of the biggest advantages of structured settlements is the fact that payments are guaranteed and once you reach a certain level of them, you won’t have to worry about missing one of your payments.

 

2- Living Allowance

 

A structured settlement is often set up on a cost of living allowance so you will never have to worry about inflation taking away your money each year. They can also be designed to accommodate the changing cost of living so that they can more accurately reflect your day-to-day expenses.

 

The advantages of structured settlements do have their disadvantages, but if you look at the positives more than the negatives, you will find that they are a great alternative to lawsuits and other legal proceedings. By getting a structured settlement, you won’t have to worry about taking payouts for years as you would have had to without one.

 

3- Tax-Free Payments

 

You will also avoid paying taxes on the money that you would have been receiving if you had won a lawsuit. The tax-free payments that you will receive will help pay for your attorney and any court costs that you might have incurred while fighting the case. This is a great way to avoid paying high fees that you would have otherwise had to pay when you won a lawsuit.

 

How to Sell a Structured Settlement to Annuity Owners

 

A structured settlement, also known as an annuity, is a set of agreed payments to be paid out to a beneficiary in the future in exchange for future annuity payments. For instance, if you are awarded a personal injury settlement in a court settlement, the liable party may be required to pay you a sum of money each month. However, some states do not require that the settlement be paid out all at once in a lump sum, instead, they allow the structured settlement payment to be disbursed over time, or in a series of smaller payments.How to Sell a Structured Settlement to Annuity Owners

 

1- Cash Flow

 

The best way to sell these structured settlements for immediate cash flow is to have a financial professional do the deal for you. These settlement payments are much like mutual funds, where the buyer of the settlement is also buying a risk. If you are awarded large sums of money, especially in today’s economy when the banks are hoarding their own funds rather than lending them out, you will find it difficult to sell the same to a private individual. Banks and insurance companies are only too happy with a large initial payout as it makes them feel more secure. In turn, they will be unwilling to give you a large lump sum of money without some guarantee of regular payments.

 

2-Sell with Independent Broker

 

Therefore, you may need to look for an independent broker who can advise you on selling the structured settlements to annuity owners. These annuity owners are willing to purchase these settlement payments in large quantities because they receive regular payments, which they can use to offset the cost of giving you the lump sum payout. This gives the annuity owners a chance to get paid and stay paid, with the peace of mind that comes from receiving regular payments. How to sell a structured settlement to annuity owners can seem a bit confusing, but the process is actually very simple. Your broker can walk you through the whole process from start to finish so that you can make the decision that is best for you.

 

Conclusion

 

A structured settlement is an option to an immediate cash payout following the conclusion of a personal injury lawsuit. Structured settlements offer plaintiffs the potential for future periodic payments rather than the lump sum award in the instance of an instant payout. It is a financial arrangement between the plaintiff and the defendant, wherein the plaintiff agrees to make periodic payments to the defendant. The payments are made on a monthly or annual basis. While a structured settlement may not fit into your immediate needs, it can prove advantageous in the long run.

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