Structured Settlement vs Lump Sum

Structured Settlement vs Lump Sum - If you're awarded damages in a lawsuit, you may be offered the choice of receiving the money in the form of a structured settlement or as a lump sum.

There are advantages and disadvantages to both forms of payment, so it can be difficult to decide which one is best.

Structured settlements generally consist of an up-front payment to settle medical bills and other immediate expenses. This is followed by more structured payments either over a specified number of years or for the duration of your lifetime.

The advantages of a structured settlement include the security of having compensation for your long-term needs as well as the inclusion of cost-of-living adjustments. Structured settlements can also be designed to provide larger sums of money periodically, for example to cover a child's college tuition or to meet special needs when you reach retirement age. Another advantage of a structured settlement is that the payments are generally not taxed, unlike any income you may earn from investing a lump-sum payment. Disadvantages of a structured settlement include the fact that the payments may cease at a specified time, or on your death. If you're offered the choice of a structured settlement or a lump-sum payment, your attorney can assist you in weighing the pros and cons of each alternative.

Structured Settlement vs Lump Sum -
Benefits of a Structured Settlement

Benefits of a Structured Settlement One significant advantage of a structured settlement is tax avoidance. With appropriate set-up, a structured settlement may significantly reduce the plaintiff's tax obligations as a result of the settlement, and may in some cases be tax-free.

A structured settlement can protect a plaintiff from having settlement funds dissipated, when they are necessary to pay for future care or needs. Sometimes a structured settlement can help protect a plaintiff from himself - some people simply aren't good with money, or can't say no to relatives who want to "share the wealth", and even a large settlement can be rapidly exhausted. Minors may benefit from a structured settlement as well, such as a settlement which provides for certain costs during their youth, an additional disbursement to pay for college or other educational expenses, and then one or more disbursements in adulthood. An injured person who has long-term special needs may benefit from having periodic lump sums with which to purchase medical equipment or modified vehicles.

In some situations, it will be better for a severely disabled plaintiff to set up a special needs trust, rather than entering into a lump sum or structured settlement. Any plaintiff who is receiving, or expects to receive, Medicaid or other public assistance, or the guardian or conservator entering into a settlement on behalf of a disabled ward, should consult with a disabilities financial planner about their situation before choosing any particular settlement option or structure.