Clients have three payment options when their claim or lawsuit is settled:
1) a lump sum cash settlement,
2) periodic payments through a structured settlement annuity or
3) a combination of cash and structured payments. In section 130 of the tax code of 1986 as amended, the Internal Revenue Service allows defendants in injury cases to purchase insurance annuities or treasury bonds to fund structured settlements to the injured parties with all proceeds from the annuities tax-free.
Using annuities, injured parties receive guaranteed tax-free income issued by an A, A+ or A++ rated life insurance company. Injured individuals can decide to receive 100 percent of the funds through a structured settlement annuity or a combination of an annuity with a cash component for immediate or emergency situations.
For injured parties, structured settlements provide a tax-free income stream without fear of money mismanagement or market fluctuations. Typically, future income and upfront cash for attorney fees, medical expenses and related liens are included in the package. In the event of the injured party’s death, a guaranteed (also tax-free) portion of the settlement may be made to the estate or a named beneficiary such as a spouse or child.
Yes. After the injured part passes away, a structured settlement can dictate that any remaining guaranteed annuity sums be paid to a named beneficiary or beneficiaries. The payments will continue to be paid to the beneficiary tax free for the remainder of the guaranteed term.
The types of cases that qualify for a structured settlement include personal injury, workers’ comp, employment and discrimination, Medicare, environmental and property loss. The types of cases in which structured settlements are allowed have grown substantially over the last five years. A structured settlement broker can provide the latest types of qualified injuries.
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