Do you know what structured settlement means? In simple terms (okay, perhaps not so very simple) a structured settlement is a type of formal agreement in which someone who has a financial or legal claim accepts payments (“periodic payments”) to settle or compromise the claim. It’s often used when settling a tort claim (like a personal injury) or when payments are required by statute. You can also find structured settlements used to resolve product liability cases. The party that has liability pays the claimant an agreed upon amount in regular intervals (like monthly or bi-annually) until the obligation is satisfied. Because these settlements often involve large sums of money and long periods of time, it’s very important that they are overseen by a good financial advisor. In the Ann Arbor area, White House Financial is known as an investment advisor with specialized knowledge relating to structured settlements.

What are the Benefits of Structured Settlements?

Just as with lump sum settlements, structured settlements can help reduce legal costs by avoiding the need for a trial. When the parties can agree on an amount but where the liable party may not necessarily have that amount on hand, they can still resolve the dispute by arranging to pay the total amount over a period of time. Usually the total amount will include interest or fees to compensate the claimant for having to wait to receive the total pay-out. Because there are tax consequences to accepting a structured settlement, it’s important to have the agreement reviewed and monitored by a professional financial consultant. Sometimes the liable party buys an annuity that pays out the amount owed over time, which makes it highly recommended to have a certified financial planner involved.

Structured Settlements around the US

Federal law takes into account the use of structured settlements, and there are laws and administrative rules in the Internal Revenue Code that control how settlements are taxed. Within State laws, the are regulations that protect the recipients of structured settlements and periodic payments. At this writing, there are 47 states with laws on the books affecting structured settlements. There are also regulations within the Medicaid and Medicare laws because of the potential effect of a structured settlement on a person’s retirement planning and post-retirement income.

Modifying a Structured Settlement

As is probably obvious, a structured settlement requires you to wait to get the entire amount of your settlement. But if you watch any TV at all, you’ve probably seen the ads for companies that are willing to buy your interest in a structured settlement and pay you a lump sum. As you might imagine, the amount they pay you is usually less than than original amount of the settlement (because they are assuming the risk that the settlement might not pay off and because of the “time value” of money). In most case, the court that authorized the settlement in the first place must approve the new arrangement, to make sure that you’re protected from fraud and to make sure that the business or person who was to pay the original structured settlement is not subject to new liability later for some unforeseen reason. As we mentioned abovfe, there are many potential tax consequences relating to structured settlements, so it’s critical to have any agreement you might enter into reviewed by a professional financial advisor. Whenever possible, we recommend that your fianancial advisor be a certified financial planner along with his or her other qualifications.