Large Settlement Awards = Large Financial Decisions. Should You Consider A Structured Settlement?

You've probably heard of people who've hit the lottery for hundreds of millions of dollars, only to end up broke a few years later. The same thing can happen after a lawsuit where you've received money damages for your injuries - money that was meant to repay you for your injuries and sustain you during the future. Getting structured settlement information can help you avoid some of the pitfalls that come along with sudden wealth.

What's A Structured Settlement?

When a lawsuit is settled for a large sum of money, the money can be paid in one lump sum, or it can be paid out in structured installments over the future. The settlement can pay out on just about any schedule that the parties want to use. For example, a yearly amount could be paid out every July for the next 30 years, with an additional larger amount every five years so that you can purchase a new family vehicle.

Why Shouldn't You Take All The Money At Once?

Some people do very well by taking all the money at once. They invest it on their own and may end up with a larger return on their investment than they would have seen through a structured settlement.

But they also have to have extraordinarily strong willpower as well. Just like lottery winners, the winner of a lawsuit is usually unprepared to handle sudden wealth. The temptation to spend too much on vacations, cars, boats, jewelry and more can be overwhelming. 

And all-too-often, friends and relatives who are aware of your settlement consider you "lucky" to receive that kind of money. (The fact that you were injured and are receiving the money as a result of significant, and lasting, effects from the injury, is often forgotten.) It's easier to refuse a loan request from a relative when a structured settlement is controlling the time and amount of the payments you receive.

Structured settlements offer a variety of other benefits that can help you, including:

  • payments are exempt from federal and state taxes
  • interests, dividends, and capital gains are also tax exempt
  • you can use them to establish a trust that will still leave you eligible for mean-based benefits such as Medicaid and Supplemental Security Income
  • you don't have to worry about investing or managing the money yourself

Disadvantages To Structured Settlements

Structured settlements aren't perfect, however. The obvious disadvantage is that by accepting a structured settlement you give up control of the money. That means that if you have a sudden financial need, you have no way of obtaining an increased payment, unless you sell your right to future payments to a company that buys structured settlements.

You should also realize that future money is worth less than present money. A payment of $50,000 will buy more this year than $50,000 will buy in another five years, ten years, or thirty years. A good investment strategy can provide a better return if you take all of the money at once.

Should You Take A Structured Settlement?

If you're about to receive a large settlement due to your injuries you are going to be put into a position where you suddenly have to make some major financial decisions that will likely affect you, and your family, for a long time. There's no one right answer for everyone.

Ultimately, you should discuss the situation with your family, your attorney, and probably a financial adviser as well.