To Structure or Not, That is the Question

A frequent issue that arises when personal injury cases are about to settle is whether the plaintiff should take the payment in the form of a structured settlement.

Structured settlements are payouts over time rather than payment in one lump sum. As usual, the best course of action depends on the specific situation. In this context it depends upon the parties who are involved and their needs. Nevertheless, there are a few guiding principles which must be borne in mind.

Tax implications are always crucial. Bear in mind that the Internal Revenue Code excludes from a taxpayer’s gross income amounts received from personal injury awards. There is an additional tax benefit in a structured settlement. When a case has been structured such that it is paid out in the form of an annuity, that entire income stream is tax-free. In contrast, if a case is resolved in a one- time payment, just the one-time payment is tax-free- a wonderful benefit- but any income produced from that money would be taxable.

The second frequently cited reason for structuring a case is that the plaintiff may not be accustomed to handling a large sum of money. A pay-out in the form of an annuity is a forced kind of savings. This is particularly helpful for many people.
One thing that cannot be forgotten in this difficult economic time is that the company paying the structured settlement or annuity should be a company that has a strong rating from the prevailing rating services such as Moody’s or Standard & Poor’s. Also, the structure should be guaranteed by yet another company, also with a high rating.

The proper structured settlement as part of the resolution of a personal injury case may be advisable. Just be sure that the safeguards are in place and that the recipient is one who would do well with a structure.