In 1982, the Internal Revenue Service created an opportunity for claimants to invest a portion of settlements in a tax-free structured settlement. The interest income is not taxed by the IRS as it is considered compensation for a loss. However, if you settle your claim with a lump sum and then invest the money yourself, you will pay taxes on the interest earned.
Unlike a cash-only settlement, a structured settlement will provide guaranteed benefits at specified payment dates to assure your financial security. You can receive monthly, annual or quarterly payments for life or for a specific period of time along with lump sums at designated intervals.
Flexibility to Meet Individual Needs
A structured settlement is designed to meet your needs. You may wish to provide for future education expenses, supplement a retirement fund, or simply provide for general financial security. Based on your input, the payment plan will be tailored to meet your objectives.
Structured settlements offer an element of "spendthrift" protection. Since you have no direct or indirect ownership of the annuity, it is considered "bankruptcy proof". That means your payments will not stop regardless of your financial situation.
Unfortunately, 90% of all lump sum settlements are spent within five years, and 70% are spent in the first year of a minor reaching his or her age of majority. A structured settlement can eliminate the stress associated with the financial responsibility of providing consistent income.