Coming into large amounts of money due to a settlement means the amount can be collected as a lump sum, or an arrangement can be made to have the money paid out in agreed upon amounts for a specified duration of time. A structured settlement payment can be beneficial in circumstances where an injury annuity is involved and the claimant is unable to work. In this situation, the claimant will be guaranteed an income for the duration of their lives.
The details of how structured settlement payments need to be paid out should take into consideration several factors. Things like duration of payments, periodicity, current age, retirement plans, medical expenses, if any, and monthly expenses should all be considered before deciding on an amount. Payments of a structured settlement annuity are income-tax free and guaranteed and in order to keep them tax free it is important that once finalized, they are not altered by either party.
A settlement agreement or annuity is covered by state and federal laws. The process of closing normally takes roughly three to six months. Federal laws require that court order be acquired by either the customer or the funding company so any tax liabilities are cleared. The customer is provided with a disclosure statement approximately three to fourteen days prior to getting the transfer agreement. This agreement specifies the amounts to be paid and their due dates.
Benefits of Structured Settlements
Structured settlements provide many benefits that make them popular. Chances of a severe loss with a personal injury lump sum are greater than with smaller amounts of structured payments. A lump sum payment will is not always be invested wisely by the beneficiary, hence the chances of money being wasted or lost in bad investments are greater. The biggest benefit is perhaps the fact that money is provided at regular intervals with the built in benefit of incurring no state or federal taxes, whereas the interest collected on investments of lump sum payment will is subject to both federal and state tax. Structured settlements provide benefits to both the defendant and the plaintiff. They save the defendant money by settling out of court as an in-court personal injury annuity costs more. It saves time for both parties. Attorney costs for out of court settlements are less than if there is in-court litigation. Another benefit is that a settlement agreement or annuity can be benefited from in a number of formats; these include, but are not limited to, periodic lump sum payments, increasing payments, delayed payments, etc.
Sale of Structured Settlements
Frequently, people with structured settlements get impatient and want to sell their secure payments for a lump sum of quick cash. They may feel that they have better options for investing the money, or wish to use it for education, purchase of a car or a home. The only possible advantage of getting a lump sum of cash is that it acts as a hedge against inflation; however, one needs to be absolutely sure before taking this step.
Selling a personal injury annuity is hardly, if ever, a good idea. As a general rule, the sale of a structured settlement annuity should absolutely be the last resort. The Sale of structured settlement can lose as much as half of its long term value. Another major consideration before considering selling your structured settlement is that structured settlement payments are tax-free, whereas investments from selling your structured will take that advantage away. Selling your structured settlement can be especially detrimental for individuals not able to work due to severe injuries. Injury annuity provides consistent income without the trouble of having to manage it.
Companies that buy structured settlements for sale, do so at a profit. The individual selling a part or all of their structured settlement payment will never get the full value for the settlement sold. Companies are attracted to structured settlements for sale as it guarantees them a safe income that is non-taxable. Buying structured settlements is easy, as not much work is needed. All the company has to do is do some marketing and get court approval so everything is in accordance with the existing laws. Since structured settlement payments are guaranteed, this means that the company buying the agreement can get loans at minimal interest rates and then invest those in other places. For example, if a company paid $400,000 to acquire settlements for sale, a return of a mere 10% on a twenty year period would earn the company $46,984 per year. So, selling your structured should never be considered as an option, unless all other resources have been exhausted.
When considering structured settlement payments it is of benefit to both the beneficiary and defendant to get the help of a settlement broker. This is because neither party usually has a clear idea of the costs and laws involved. Also a broker can provide information that will be useful during negotiations. A broker has the experience of providing financial analysis of the personal injury lump sum, helps to negotiate the most beneficial agreement, and can even offer tax advice. A settlement broker can provide different payment options and is able to explain the prominent features to work out the best payment structure suitable to individual needs. This is important so the beneficiary would never have to offer his settlements for sale.
Before selecting a settlement broker, a thorough research should be done. A good broker will be registered with the Department of Justice and be registered in at least one state of the country. At the same time, the broker should be registered with at least one insurance company. Additionally, the broker should be insured against mistakes and omissions. Chances are that a broker fulfilling these criteria will have the experience necessary and a solid track record that can be trusted. It is important that the best broker is engaged as large sums of money are involved and major decisions have to be made based on the broker’s information.