What is a Structured Settlement?
A structured settlement is a financial tool, utilized primarily in personal injury and wrongful death negotiations, with future periodic payments built to fit the immediate and long-term needs of the injured party, or surviving family members. The payments are funded through the purchase of a fixed annuity (either immediate or deferred) by the defendant, on behalf of the injured party. The annuity is purchased through a highly rated life insurance company and all payments are completely exempt from income tax (if the claimant is physically injured, or the survivor of a wrongful death action, per 26 USC § 104 – (a) (1) & (2).
Who should consider Structured Settlements?
Candidly, everyone involved in a personal injury negotiation should consider the benefits of a structured settlement. The opportunity to receive guaranteed, tax-free income is unique. Working with a JCR professional, we can help identify future needs and develop a thoughtful financial plan to address those needs, eliminating the stress and uncertainty of how those identified needs will be met and eliminating concerns about financial management of the funds after settlement. Of course, there are some cases in which implementing the benefits of a structured settlement are an absolute. Those include:
- Any case involving a minor, as they typically cannot access settlement funds until they turn 18.
- An injured party who desires to receive a steady stream of income for any period of time, or who has a diminished earning capacity as a result of the claim.
- Injured parties who may have problems managing money, or who are mentally incompetent to manage and protect their funds from loss.
- Injured parties who want to shield settlement monies from future taxation on earnings, or preserve State or Federal benefits, such as Medicaid or Social Security Income.
- Severely injured people who have life care plans based on their injuries and have a shortened life expectancy. These types of cases include traumatic brain injuries and paraplegia, as an example.
- Anyone that will require future and ongoing medical care.
- Surviving spouses who are responsible to ensure the needs of the Family continue to be met.
How do injured parties benefit from Structured Settlements?
The greatest benefit to the injured party is protection. When properly designed, annuitants are assured that guaranteed tax-free payments will always be available to meet their financial demands. There is no risk that payment amounts will change or fall victim to the ebb and flow of the stock market. A structured settlement provides a claimant with financial security in a time of uncertainty. They are protected and governed by Federal legislation and IRS regulations. Confidence, peace of mind and guaranteed performance are all trademarks of the structured settlement, helping injured parties move forward with their lives.
It is typical for a claimant and the insurance carrier to disagree on the value of a claim. The main issue is often that the claim is being valued in terms of a one-time cash settlement. If a claimant shifts the focus to what he or she will need in future income, often an agreement can be reached which is beneficial to both parties. In short, a structured settlement often breaks deadlocks between the claimant and the defendant insurance carrier. Also, it may encourage a settlement sooner than would be the case with a cash only settlement, or trial.
There are nearly limitless design options available to injured parties when utilizing structured settlements. Payments can be made on a weekly, monthly, quarterly, semi-annual or annual basis. Payments can be made for a defined period of time or over a lifetime. Lump sum payments can also be made on specific future dates, to coincide with anticipated major expenses, such as; college expenses, medical expenses such as prosthetic or wheelchair replacements or future surgeries. Typically, an annuity design is comprised of multiple payment streams to meet all of the future needs of the injured party. Payments can commence immediately after settlement or be deferred to future identified dates.
If income needs are expected to grow, inflation hedges can be put in place through cost of living adjustments (COLAs) or “step-up increases” in the payment amount.
Any remaining guaranteed payments that are part of the annuity payment schedule will be made to an identified beneficiary, such as; a spouse, child, grandchild or nonprofit entity (i.e. a church). All payments are also made to the beneficiary in a guaranteed tax-free manner. This offers unprecedented estate protection and peace of mind for surviving family members.
Fixed annuities are among the most conservative financial investments. This makes them ideal investment vehicles for injured parties who cannot afford to speculate with their future.
Structured settlement annuities are backed by leading life insurance companies. Many of these life insurance companies have been in business for more than a hundred years; through recessions, depressions and world wars. These life insurance companies have maintained stability in various financial climates promoting the structured settlement as a safe and trusted option.
If utilizing direct deposit of funds for annuitants, there is not much to think about once the annuity is in place. Funds are deposited on the identified dates and can be used immediately by the claimant to meet the financial demands of daily life. At the end of the day, designing a well thought out structured settlement is always a smart idea as it eliminates the risk of financial mismanagement by the injured party or a third-party investor.
Of course. However, none offer the guaranteed tax-free benefits associated with a structured settlement. A structured settlement is often used to address a catastrophic event in the life of an injured person.
The stress of managing large sums of money can hinder recovery and put unnecessary stress on the best family relationships. Investing settlement dollars without instituting a structured settlement component requires consistent monitoring of investment performance. For many injured people, the position of hoping there are adequate resources available when they are needed does not make sense. Working with a JCR Settlements representative to design a well thought out payment plan eliminates worry and allows the injured party and family to move forward with their lives – stress free. Moreover, a structured settlement does not carry management fees which can reduce working investment capital and further hamstring a claimant as he or she tries to manage the financial needs of their life.
It is important to note that should a blended approach of guaranteed, tax-free annuity payments via a traditional structured settlement and securities (and/or advisory services) be necessary, Ryan Garrison can help. Ryan is the Executive Vice President of JCR Settlements and President of Garrison Financial. Ryan Garrison offers Securities and Advisory Services through United Planners Financial Services of America, a Limited Partnership, Member FINRA, SIPC. JCR Settlements and Garrison Financial are not affiliated with United Planners.
Possibly and possibly not. What is clear, is that because of the tax-free status of the payments, structured settlements often offer returns higher than those normally available in other low risk investments.
However, you may want to consult your financial advisor about responsible re-investing of your annuity payments through dollar cost averaging, or fixed income investing. To get a higher return you will have to accept higher risk and greater uncertainty. Placing settlement funds with investment advisors can be confusing and stressful.
There is never a fee from JCR Settlements associated with structured settlement quoting. Many investment options with financial planners are subject to management fees and taxation on the interest earned. More importantly, structured settlement annuities GUARANTEE performance. Alternatively, when the stock market crashes, typically so does your portfolio.
Structured settlements are guaranteed, tax-free, and designed to provide income as it is needed.
While this may be possible, most financial advisors do not have the experience in accident-related settlement planning and the laws and IRS codes that surround a structured settlement. If you have a financial planner that you want involved, have them contact us. At JCR Settlements we are here to assist all parties in reaching an agreeable settlement. Often we can assist your financial advisor in creating the best plan for you utilizing a combination of structured settlement annuities and financial products.
There are no out of pocket expenses for utilizing a structured settlement consultant from JCR Settlements. If and when your case is settled with a structured settlement, your consultant’s services are paid by the life insurance company that guarantees your future payments. All life markets pay JCR the same commission rate, so there is no incentive for us to place an annuity with a more profitable life market. Our job is to help design the best financial solution for the injured party and find the highest available yield amongst the various life markets, on that design.
Great question and one we are humbled you are considering. We are guided by our faith, and handle each claim with the personal attention we would our own finances. JCR Settlements representatives are dedicated to helping all parties reach a settlement that is fair. We have settled cases in all 50 States and understand every claim is unique, as are the individuals involved in the negotiation. Our goal is to eliminate stress and create financial solutions that allow everyone to move forward with their lives.
Should you still have questions about additional options, please call our Nationwide Settlement Planning Line at 800.661.7075 or contact us via email if you are interested in learning more.