Structured Settlement- a fair settlement for all

by Broke Professional on February 21, 2014 · 1 comment

Injuries, accidents, and mishaps are the harsh realities of life. If these contingencies occur due to the fault of others, the victim has every right to demand justice. The question then arises whether the victim should undergo the long process of trials in a court of judgment or should the victim settle for periodic compensation. This compensation paid by the defendant or the casualty company over a period of time is what we call the “structured settlement”. This method of disbursing the responsibility towards the victim came into vogue in the United States in the 1980’s after the United States Congress passed new laws concerning tax exemptions. However, they were first used in Canada to seek settlements for children affected by Thalidomide. Now, they are in great demand in many nations.

Victim settling for “structured settlement”- Why?

Less Expenditure-Structured settlement is a wise decision for all concerned parties. For the claimant of compensation benefits abound. If the victim decides to take the casualty party or company to court, he/she will have to shell out more money to take care of the court expenses while the medical attention that he/she requires will be neglected in the process. Unless the victim succeeds in proving the carelessness of the casualty party, he will not be entitled to any financial assistance. The defendant or casualty party can always prove its innocence by employing clever tactics suggested to it by the best attorneys in town. Therefore, the outcome of such cases is arbitrary. Often, the injuries are serious enough to demand immediate and expensive medical treatment. To meet these expenses, it is advisable that the victim settles the dispute with the casualty party outside a court of law via structured settlement. Trials will only further add to the victim’s woes by increasing expenditure.

Fixed source of income-Furthermore, if the grieving party agrees to take a lump sum from the casualty company, there are high chances that he/she will spend all the money in a short period of time. The security that the lump sum will provide will not last long as statistics have proven that money management is not the victim’s cup of tea. On the other hand, structured settlement will provide a periodic income to the victim. Thus the victim will have a steady flow of cash at regular intervals which will take care of his/her expenses. According to the rules of the Internal Revenue Code, the claimant cannot withdraw his/her periodic payment before the date when it is due. Thus there is no fear of mismanaging the money.

Tax free income- The United States Congress has exempted all income through structured settlements from the purview of tax payments. Thus, such compensations do not come with the heavy formality associated with payment of taxes. The victim can peacefully enjoy the benefits.

A win-win situation for the casualty company:

All’s well that ends well- If the victim decides to accept structured settlement, it saves the casualty company all legal expenses involved in the process of trial. Furthermore, a lawsuit is not desirable for the goodwill of the company.

Lesser payment and transfer of liability – In case of a structured settlement, the defendant will only have to purchase an annuity from an insurance company. Then it is the headache of this company to make regular payments to the victim. The annuity is planned and purchased in such a way that the timings and payments match with the periodic payments agreed upon in the settlement. Moreover, the purchase price of this annuity is lesser than the sum total of all future periodic payments. The company only pays for the present value of the annuity. Thus, the casualty company overcomes this long term obligation by actually converting it into an asset.

Qualified Assignment- When the casualty company or defendant does not intend to keep a record of these payments in its books; it can transfer the obligation totally to a third party. All the company needs to do is to pay the third party (who is usually an affiliate of an insurance company) sufficient money so that it can buy a suitable annuity that will be able to make the periodic payments. If the grieving party agrees to this, then the casualty company will have no further responsibility of making any payments. This transfer of liability benefits the grieving party as well since they do not have to depend only on the continuing credit of the defendant.

Tax Exemption- The amount that the casualty company or defendants pays to the victim will not be included in the company’s taxable income as per the rules laid down by the U.S Congress. This works as a great incentive for the casualty companies and they readily agree on periodic payments rather than paying lump sums.

{ 1 comment… read it below or add one }

1 Leonard @ The Wallet Doctor February 26, 2014 at 11:10 am

Depending on the amount in question, those tax benefits are enormous. Thanks for so clearly explaining these benefits!


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