Many of our clients ask about structured settlements. It seems everyone has heard of structured settlements, but few people know the basics of how a structured settlement works. Our guest blogger, Ryan Garrison, wrote this blog post to answer those questions.
Ryan Garrison is President of Garrison Settlements. Garrison Settlements’s stated mission is to “educate and encourage. Ryan strives to build genuine friendships with each and every client. It uses transparency as the cornerstone of these friendships.”
What is a Structured Settlement?
A structured settlement annuity (“structure”) is a financial vehicle that assists in compensating injury victims and their families in legal settlements. Encouraged by the U.S. Congress since 1982, a structured settlement is a voluntary agreement between the injury victim and the defendant. A structure can provide you with numerous payment streams, from lifetime monthly payments, to lump sums in the future. Future payments can be used to address medical expenses, a mortgage, or to help fund your children’s education. Because of your injury settlement, a structured settlement can provide you with guaranteed, 100% tax-free payments, per Internal Revenue Code (IRC) 104(a)(1) or (2). Furthermore, the U.S Congress enacted the Periodic Payment Settlement Act of 1982 (Public Law 97-473), which formally recognized and encouraged the use of structured settlements in tort physical injury cases.
Why should I consider a Structured Settlement?
If you or a family member have been the victim of a physical injury, then you should consider a structure because they were invented to assist injured people just like you. Remember, a structured settlement must be purchased by the defendant as part of the settlement. While you can buy an annuity after settlement, (once you have received the funds) all payments from this type of annuity would be taxable.
Remember, the only time that you can take advantage of a 100% tax-free annuity payment is via a structure settlement annuity during the settlement process.
What is the benefit of a Structured Settlement?
The greatest benefit to you is payment protection. Once the policy is issued, you are guaranteed 100% tax-free payments that will always be paid on a schedule you designed. There are no ongoing management expenses and no risk that payment amounts will decrease. Structures can be used to fund trusts for the protection of government benefits. Structures can also provide protection from the total dissipation of funds. Structures provide confidence, peace of mind, and guaranteed performance. There are limitless design options available for your future payments when utilizing a structure. If income needs are expected to grow, inflation hedges can be put in place through the cost of living adjustments or step increases in the structure payment amount.
What happens to my payments when I die?
Any remaining guaranteed payments will be made to your designated beneficiary, such as a spouse, child, grandchild, or nonprofit entity like a church. All payments are made to your beneficiary in a guaranteed, tax-free manner. This offers unprecedented estate protection and peace of mind, as the payments to your estate would be tax-free like a life insurance payment.
How safe is a Structured Settlement?
Structures are one of the most conservative financial investments available. They are ideal investments for those who have been injured and cannot afford to be speculative about their future needs. Structures are placed with leading life insurance companies, many of which have been in business for over 100 years.