What is a structured settlement, and how does it work? Structured settlements are a series of payments which are awarded to the people who settle a lawsuit. The defendant is responsible for funding the payments. A structured settlement is an alternative to a substantial compensatory lump sums because they provide a future guarantee of financial security because a lump sum settlement can be spent quickly.
How does a structured settlement work?
If you agree to take your payment as a structured settlement, you will receive periodic payments over the course of particular years in the form of a financial product known as an annuity. For instance, if you win $1,000,000, the defendant might be required to pay $100,000 every January for ten years. You can create a structured settlement so that you can get the cash when you need it most.
For instance, you may opt for a large initial payment where you can pay off a mortgage, or pay overdue bills. Then smaller subsequent payments could serve as a substitute for the income you lost. Some settlements are also created to offer a yearly income while you receive additional amounts to pay for essential expenses like college. A structured settlement is so flexible that you can design it to be more suitable for your lifestyle.
How is structured settlement taxed?
Now that we have answered your question, “What is a structured settlement, and how does it work?”, you may need to know how your structured settlement is taxed. You may wonder about the effect the payment will have on your tax and how you’ll need to report to IRS. Due to the Periodic Payment Settlement Act, almost all the structured settlements are totally free from taxation.
The reason this form of settlement is not taxed is because the federal government doesn’t see structured settlement payments as income, but instead soothing payments to right a wrong. However, there are some cases where a structured settlement could be taxed, and they include:
- Divorce settlements
- Lottery payments
- Backpay settlements
- Liquidation damage payments
- Punitive damage payments
Why should you sell your structured settlement payments?
There are several reasons why people choose to sell their structured settlement, but this decision shouldn’t be taken lightly. Ultimately, you’ll be selling a massive part of your settlement, which is design to provide financial stability for several years to come. This is particularly crucial if you are unable to work in your previous job due to an injury or other problems that resulted in the settlement. However, there are some situations where it is important to consider selling your structured settlements, and some of them include:
Starting a business
Paying off debt
Making a down payment on a home
Covering medical expenses
The structured settlement as an annuity
You may need to buy an annuity from an insurance company to carry out your periodic payouts. With that, the defendant can be free from this obligation and transfer the payment responsibility to a company with experience in managing period payments. This has become more popular over the years due to the flexibility it offers.
Let us help
If you decide selling part or all your future structured settlement payments is the right decision for you, We Pay More Funding can work meticulously with you and the court system to provide you with a lump sum cash for part or all of the total settlement. Contact us today!What Is A Structured Settlement And How Does It Work
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