Structured personal injury settlements
STRUCTURED SETTLEMENTS ARE GREAT FOR MINORS
Even the most disciplined 18 year old can blow through a few hundred thousand dollars in a short period of time. A $100,000.00 boat, a Range Rover Sport, and a few lavish trips could be the end of several hundred thousand dollars, real quick. A carefully planned and structured stream of payments with a reasonable rate of return on investment built into the structure solves a lot of the problems that come with being 18 years old and cash rich.
The liability insurance company has the option of offering a structured settlement instead of a one time lump sum payment. The injured party can reject the offer to structure and negotiate on a lump sum basis; but in large money cases, structures usually enter into the negotiation process.
INJURED PARTY SHOULD HAVE HIS OWN STRUCTURED SETTLEMENT ADVISOR/BROKER
In large cases, the insurance carrier usually brings a structure specialist to the settlement conference; or has one available for quotation options. We believe that the attorney for the injured party should involve a structured settlement specialist to ensure the most competitive rates of return are determined by competitive quotations from multiple insurance companies.
Structured settlement specialists should be familiar with medicare set aside trusts, income taxation, medical lien negotiations and a multitude of other technical issues that arise under various circumstances. They are a great resource for the injured party and his or her attorney. They serve as the broker for a large number of insurance companies and financial companies, who are essentially competing to write the annuity. Different companies offer better yields than others on the same quotation date.
HYPOTHETICAL STRUCTURED SETTLEMENT
Assume a male, 14 at date of settlement agreement in 2015. Single premium annuity purchased from life insurance company for $200,000.00 by the liability insurance company for the at fault party.
YEAR AGE Payment Amount to injured party
2015 14 zero
2016 15 zero
2017 16 zero
2018 17 zero
2019 18 $20,877.60
2020 19 $20,877.60
2021 21 $20,877.60
2022 22 $20,877.60
2023 23 $20,877.60
2024 24 $20,877.60
2025 25 $20,877.60
2026 26 $20,877.60
2027 27 $20,877.60
2028 28 $20,877.60
2029 29 $20,877.60 (Last Payment Year)
2030 30 zero etc..
TOTAL PAYOUT $250,531.20
Metropolitan Life, a 2015 quotation, as an example, courtesy of Michael Gunn, Forge Consulting, Columbia, S.C., an established firm in the area of structured settlements and other litigation related financial planning. Forge Consulting, Inc.
TAX ADVANTAGES OF A STRUCTURED SETTLEMENT
Provisions of the United States Code specifically exclude from the definition of taxable income, money from settlements for personal injury; and therefore, the a hypothetical would not be taxable, even if paid in a lump sum. But if the annuity was purchased as a structured payment for lost profits etc..,, not personal injury related, there would be tax consequences that need to be considered.