Structured Settlements: Pros and Cons in 2021
In 2020, the number of civil cases, especially those dealing with personal injury accidents, will never actually make it to court for a trial.
More and more cases are being settled before getting to court, and this is due to a growing trend since the 1990s, which has seen the number of civil cases settled or dismissed without a trial balloon to 97%. Those that did go to trial, 55% were won by the plaintiff for over $4.4 billion in damages awarded, according to a government survey in Phoenix, Arizona.
What could it mean when it is stated a case is settled? The plaintiff, who is usually the injured party in the case, agrees to cease further legal action against the defendant (the party who caused the injury) in exchange for monetary compensation. This compensation comes from the defendant or the defendant's insurance company.
For cases involving large sums of money (usually over $100,000), a structured settlement is often set up, which gives the plaintiff either monthly or yearly payments.
Are you are currently in a situation where you are considering accepting a structured settlement as a settlement for injuries you received in an auto accident, a slip and fall injury, or a work-related injury, you should fully understand the process. You are best served to have the right representation. You should have AT LEAST a tax attorney and a personal injury attorney at your side, giving you the proper counsel.
Rest assured, the defense has at least one attorney, but more likely a small army of attorneys if you are dealing with an insurance company. They do NOT have your best interests and will attempt to give you the absolute minimum to make your case go away.
Depending on many factors, including the complexity of your case and settlement, you might also wish to hire a CPA (certified public accountant).
The following is not a comprehensive list of Pros and Cons of Structured Settlements, but rather an overview to help you make a better decision in your situation:
STRUCTURED SETTLEMENT PROS
- For the most part, a structured settlement could provide you (the plaintiff) with a tax benefit (which could be substantial). How? You may not be aware, but personal injury settlements can be "tax-free" as explained in the U.S. Tax Code. However, just like everything in life, there can be and are exceptions that can take that "tax-free" label, and you could be liable for taxes. This is why it is vital for you to have the right people on your side to give you the right advice in your situation. Having the right tax expert and attorney is something you cannot do without.
- The biggest benefit of a structured settlement is to ensure the injured party has a continual stream of income to take care of medical bills and living expenses without the risk of overspending on items that are not related to taking care of the injured individual.
- In the settlement, it can be stated that a custom payout is given to meet the plaintiff's needs beyond living and medical expenses. These demands and contingencies can be specifically listed or not depending on the circumstances of the plaintiff.
- What about protection? Hopefully, you live in a state where state insurance laws protect annuities and guarantee they will be paid even in the event the insurer declares bankruptcy. What would happen in that situation? The states which have insurance laws set up for a safety net the payment will continue and be covered and paid by the home state's guaranty association. Note: it is subject to state limits, so be sure before the structured settlement is set up, you are aware of the restrictions in your state, and the structured settlement does not exceed said limit.
- You can request a "combo settlement," which is a lump-sum payment and a structured settlement to meet immediate expenses, such as medical bills, repayment of debts, rehabilitation costs, with the lump-sum and a structured settlement to handle the living expenses.
- There is also an option that can be written into the settlement in case a "miracle cure" is developed to allow for "an advance" to be given to the plaintiff to try the new medical option.
- Because it is not a lump sum payment, a structured settlement may help the defendant and plaintiff settle even if they are far apart in their negotiations.
STRUCTURED SETTLEMENT CONS
- There can be taxes. Punitive damages, attorney's fees, emotional damages which are not stemming from the physical injury at the base of the case, and others.
- If the settlement is for a minor, a structured settlement could be a mistake, as even though a lump sum of cash is received, the minor is not allowed to spend the money until they reach a certain age, which is usually 25 years or older. This is to ensure the individual has reached maturity to make the right financial decisions. By getting the lump sum, it allows the guardian to make investments which will allow for the lump sum to grow exponentially over receiving periodic payments.
- Even if every care in the world is taken into consideration, the future is unknown. There could be a recession or other unfavorable economic conditions which could make the agreed annuity payments not enough to meet the plaintiff's needs.