Selling a Structured Settlement

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 What is a Structured Settlement?

If you have successfully settled a lawsuit as a plaintiff, you may be wondering exactly how you will receive payment from the defendant. If the defendant can afford it, you might receive a single lump sum payment.

On the other hand, you may receive your award in the form of installments paid by the defendant over time until the settlement is completely paid in full. These longer-term payouts are a form of annuity called a structured settlement annuity. The variety of structures is virtually infinite since payments are usually geared to consider the particular cash flow needs of the recipient.

In most structures, a significant portion of the total is paid on the day the settlement is signed, and periodic amounts (usually monthly or annually) are paid throughout the balance of your life. The payments are usually constant but may increase over time.

This payout may be formalized as an insurance product that the defendant purchases to guarantee regular payments to you. Structured settlements are popular in personal injury cases such as automobile accidents and medical malpractice.

While this article discusses periodic payments principally in the context of personal injury litigation (the most common reason for a structured settlement), structured settlements can be used in a variety of settings that seek to obtain the advantage of deferral of payments, including dissolution of marriage, contributions to charities, the buyout of business partners, etc.

What Are the Pros and Cons of a Structured Settlement?

An award against a defendant can lead to serious and long-lasting financial problems for the defendant. If the only available option for making payment were to make a single lump-sum payment, you would probably never receive the money you are entitled to since the defendant might be unable to pay it.

With a structured settlement, a defendant may spread that financial burden over many years. That is good for both you and the defendant because it increases the chances that you will get paid by the defendant because they can better make the payments without breaking them financially.

There are other benefits to you as well. The governing tax laws are complex and subject to change and various interpretations.

The tax implications for a lump sum payment versus a structured settlement may differ. For example, receiving a large sum in one payment might push you up into a higher tax bracket, while moderate payments scheduled to be given over years will not do so. Moreover, payments for personal injuries are generally free from federal tax.

Additionally, breaking a damage award into a series of payments can be a good idea for people who feel there is financial security in a long-term payout from an insurance company or for individuals who might need long-term care.
However, a structured settlement does not offer the same buying options as does a lump-sum payment. As the successful plaintiff, perhaps you would like to use your settlement immediately to pay off certain large expenses or purchase a home, so you would be better off with a large, single payment.

With a structured settlement, a clause may allow you to collect the whole amount of the money due you if there is an emergency. However, early withdrawal can have serious repercussions once the payout terms are in place. There may be early withdrawal penalties that could significantly reduce the money you will pay if you take a lump sum. It will not come as a surprise – all of this will be spelled out for you in the settlement contract.

What Should I Do Before I Sell My Structured Settlement?

Perhaps you need a lump sum payment now to deal with an emergency or to buy a house. Whether or not you are free under your settlement agreement or state and federal laws to sell your structured settlement, you must get the advice of qualified professionals so you understand what the financial, tax, and legal risks are for doing so.

The good news is that once you have decided that selling your structured settlement is the right step, the sale is pretty straightforward. You just have to find a financial company that buys these financial products. You should ask for free quotes and compare quotes from different buyers before committing to anything. Determine how much money you would collect if you kept the structured settlement in place, and compare that amount to the quotes you are given.

You should research to ensure you have settled on a reputable buyer. In assessing if you have found the right buyer, ask yourself if you are clear about the amount of money you will receive from the sale. A credible company will give you an offer in writing.

Have you agreed to sell all or just a portion of your settlement payment? Have you considered the full value of the current annuity versus what the buyer is offering to buy it for? Are you feeling pressured by the buyer to sell the annuity for less than it’s valued based on your research and after consultation with professionals? It may be worthwhile to contact a local personal injury attorney, who will use their experience to help you determine your best option.

How Do I Sell My Structured Settlement?

Your research has led you to a reputable buyer. You have agreed to the terms for selling your structured settlement and have put these terms in writing. Once the sale is final, you will receive your lump payment quickly, and you can begin to spend it as you see fit.

Remember that you and the buyer must be aware of some state and federal regulations and safeguards for the sales agreement to be enforceable. In addition:

  • Interested parties (i.e., insurance company or beneficiaries) will need to be notified of the sale
  • If you change your mind after signing the sales agreement, you may have only a short window to cancel it
  • The buyer should provide information about any fees or expenses associated with the sale
  • Court approval of the sale will be required. Failure to obtain court approval can have serious tax implications.

Should I Consult With An Attorney Before Selling My Structured Settlement?

Selling your structured settlement has broad implications for you. You should receive professional advice about the pros and cons of selling the structured settlement for a lump sum payment.

In addition, the tax consequences of a structured settlement are complex, and it would be best to have a knowledgeable attorney to guide you.

Besides the settlement contract itself, you may be restricted from selling your settlement award by law or otherwise required to satisfy certain regulations before you may be entitled to receive a lump sum.

Each state’s legal requirements will be different, and federal safeguards are also in place. Consult with a local personal injury attorney in your state who regularly advises on such issues to ensure you are fully aware of your rights and responsibilities before selling your structured settlement.


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