You have worked hard to settle your clients’ cases: from case intake and evaluation, discovery, demand letters and now to mediation. You have tried to manage your client’s expectations, understand their needs, and listen to their hopes and fears. But have you considered discussing a structured settlement with your client to help them achieve their future goals or to meet their ongoing needs?
Structured settlements can only be offered during the settlement negotiation process to preserve the tax treatment of the payments. As such, our members encourage plaintiff attorneys to, at the very least, mention what a structured settlement is and that it is available to the client before the settlement is finalized.
We encourage you to refer your clients to the NSSTA website for objective and educational information regarding structured settlements. From this website, you or your client can locate structured settlement consultants in your area who are NSSTA members using the “Find a Member” button.
Why Recommend Structured Settlements to Your Clients
- Security. Structured settlements provide two kinds of security. One has to do with lack of volatility. A structure can generate a planned, dependable cash flow. The second kind of security has to do with what might be called the safety of principal: the confidence that the payments will, in fact, be made.
- Tax Treatment. Under § 104(a) of the Internal Revenue Code, payments received from the settlement of personal physical injury or physical sickness claims, worker’s compensation claims and some disability claims are income tax-free, whether they are received in cash or in the form of periodic payments.
- Flexible Payment Design. Structured settlement annuities are extremely flexible in design. Future periodic payments can be tailored to match clients’ wide variety of needs. If your client can no longer work in the same capacity, payments can be designed to replace lost income or supplement income. If your client now requires life-long attendant care, then structured settlement payments can be set up to cover that cost. Or, if the claimant is a minor, the future payments may begin years into the future, when the claimant reaches the age of majority and can be timed to pay for college or vocational school.
- Spendthrift Protection. Other than the fact that structures from personal, physical injury cases are income tax-free, the most often quoted benefit of structures is spendthrift protection. A severely injured claimant needs to know that he or she has an income which will always be there, and a structured settlement provides that assurance.
Why Work with a Structured Settlement Consultant
Structured settlement consultants can be a valuable part of your settlement team and can assist you throughout the settlement process. In addition to discussing a structured settlement with your client, they will evaluate life care plans, economic reports, attend mediation(s) with you, evaluate proposals from the defense team, and assist with the settlement documents. It is very important to get a structured settlement consultant involved early on in your case so they can provide you with their full services.
If you do not already work with a structured settlement consultant, you can find the consultants in your area, by clicking on the “Find a Member” button. Contact a consultant today to see how they can assist you.
In the Periodic Payment Settlement Act of 1982 (P.L. No. 97-473), Congress adopted specific tax rules to encourage the use of structured settlements to resolve physical injury cases.
Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement payments is tax-free to the payee. By contrast, the investment earnings on a lump sum payment are usually fully taxable.
In order to protect the injured party, Congress specified in Section 130 the requirements to establish a qualified assignment:
- The assignee assumes the liability from the defendant and/or its insurer;
- Both the injured party (and their attorney) and the defendant agree that the payment schedule cannot be "accelerated, deferred, increased or decreased";
- The payment stream may be excluded from the recipient's gross income for tax purposes;
- The injury must be a physical sickness or injury; and
- A highly secure funding asset must be used to fund the periodic payments.
Structured settlements can be ideally suited for many types of cases, including:
- Persons with temporary or permanent disabilities;
- Guardianship cases that may involve minors or persons found to be incompetent;
- Workers' compensation cases;
- Wrongful death cases where the surviving spouse and/or children need monthly or annual income; and
- Severe injury cases, especially with long-term needs for medical care, living expenses, and support of family.
Independent surveys show that the more serious the injury, the greater the likelihood that a structured settlement will be part of the settlement plan.