Structured Settlement 101 - Enrique SierraHere are the basics of a structured settlement. Please don’t hesitate to call me with any questions.

Tax benefits: For injured parties, structured settlements provide a tax-free income stream, possibly for life, without fear of money mismanagement, market fluctuations or unscrupulous con artists waiting to milk them out of their money.

Minimum structure: About half of structured settlements are for settlements under $50,000. Most are under $200,000.

Types of cases: Cases that qualify for a tax-free structured settlement are personal injury and workers’ comp.

When to set up a structured settlement:

  • A structured settlement must be created during the settlement process.
  • Once a settlement agreement is reached and signed, parties cannot go back later and attempt to implement a structuring plan.
  • When creating a structured settlement, never deposit your client’s settlement amount or your legal fees into your firm’s trust account, the funds automatically belong to you and your client so the money would be fully taxable.

Steps to create a structured settlement: 

  • During settlement negotiations, plaintiff and defendant attorneys determine the injured party’s ongoing medical care, living and family needs (i.e., possible future medical treatment, in-home nursing expenses, college tuition for dependent children, adjustments to living quarters).
  • Once the injured party’s needs are determined and a dollar amount assigned, the defendant (or its insurance company) agrees to the settlement and funds the obligation by purchasing an annuity from a high-rated insurance company.
  • The insurance carrier or “assignee” then takes over the liability from the defendant and begins making periodic payments to the injured party.

Role of a structured settlement broker: Structured settlement brokers are typically involved in initial and ongoing consultations with the attorney and injured party. They prepare annuity price-benefit analyses, create and review settlement documents, attend court hearings, arbitrations, mediations and settlement conferences. They are responsible for issuing the annuity policy to the plaintiff.

Cost: There are no costs to create a structured settlement to the plaintiff attorney or injured party. The insurance broker’s commission to arrange and purchase the structured settlement annuity is paid by the life insurance company.

Enrique Sierra

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