What is a Structured Settlement?

A structured settlement is a payout arrangement that allows plaintiffs in personal injury suits to acquire damages in small amounts over a long period of time as opposed to in one lump sum. Your personal injury attorney can talk to you in detail about the pros and cons of structured settlements versus lump sum payments. If you're settling on a relatively minor lawsuit, you may not have enough money coming to you to warrant a structured settlement payout.

That said, your personal injury attorney should alert you to the following benefits of the arrangement. You don't have to pay federal or state taxes on the payments that come to you at various intervals. The fact that you won't have a large pot of cash at any one time makes you less attractive to con men and malicious trustees and provides an inherent safety net against poor investing or overspending.

Moreover, your structured settlement can anticipate changes to your medical welfare and adjust accordingly (in some cases). Plus, the arrangement is often easier on defendants who may not have a large amount of cash to pay out at one time to deal with the lump sum payment.

Congress first developed the structured settlement arrangement in the early 1980s, and since initial legislation was passed, thousands of cases have been adjudicated according to the system.

Don't just consult your personal injury attorney about whether or not to opt for this method. Work with a financial planner and a trusted family accountant to develop a sound money management plan based on your working capacity (which may be diminished as a result of the accident for which you are suing for redress) and your expected future liabilities.

Remember that a large settlement may appear at first capable of covering your expenses for the rest of your life, but when you subtract out attorney's fees, taxes, and cost of living extrapolated over decades, you may be left with very little per year.

It is possible to lend out or even sell your structured settlement payments to outside entities. However, discuss any unorthodox presale options with your personal injury attorney or another financial advisor first, since irrevocably losing your settlement payments can really upset your financial or medical future if you are not careful.