A structured settlement, also known as “periodic payments”, is an insurance or financial agreement or pact that integrates scheduled payments that a claimant will receive to resolve or close a personal injury case or to negotiate a statutory payment responsibility. These types of settlements were originally employed in Canada. They were adapted in the U.S. in 1970s as an alternative for lump sum settlements.
These settlements became a significant component of the statutory tort law of many countries to include the United States, England, Canada, as well as Australia. Even though some of their settlement features are the same, each of the country has its own rules, definitions, and standards for setting up and purchasing structured settlement.
These settlements may incorporate spendthrift requirements, income tax, and other advantages. Frequently, the structured settlement investment will be created by the defendant or insurance companies through a simple process; they buy annuities, which lock in future payments. On the other hand, a structured settlement linked with a trial or lawsuit judgment is known as “periodic payment judgment.”
US Structured Settlements
The United States has stipulated rules and regulations for structured settlements both at state and federal levels. While the federal laws contain Internal Revenue Code sections, the state laws administer the settlement periodic payment of judgment statutes and settlement protection statutes. Note that the Medicare and Medicaid laws also regulate these settlements.
A comprehensive “structured settlement” definition can be seen in 5891(c)(1) (26 U.S.C. § 5891(c)(1)) Section of the Internal Revenue Code, which affirms that a settlement is a type of “arrangement” on the following standards:
The settlement must be set up through:
- An agreement for intermittent payment of damages not included in gross income, which falls under 104(a)(2) (26 U.S.C. § 104(a)(2)) Section of the Internal Revenue Code; or
- A suit for episodic payment of damages for any worker’s compensation law excluded from the 104(a)(1) (26 U.S.C. § 104(a)(1)) Section of the Internal Revenue Code; and
- The periodic payouts should meet the requirements stipulated in the (A) and (B) subparagraphs of the 130(c)(2) (26 U.S.C. § 130(c)(2))) Section of the Internal Revenue Code and should be payable by an individual who:
- Is a significant party to an agreement or suit or to a worker’s compensation legal claim; or
- By an individual who has assumed the legal responsibility, also known as the structured settlement purchaser, for arranged periodic payments under a qualified assignment in compliance with the 130 (26 U.S.C. § 130) Section of the Internal Revenue Code.
It’s vital for you to keep in mind that when companies purchase structured settlements there are specific excise tax included in the “factoring discount.”
Structured Settlement Assignment
Structured settlement loans are said to be a “qualified assignment” if they meet the conditions set by the Internal Revenue Code Section 130. The legality of the assignment is critical to the lender or assignment companies since without the court approval, they will not be able to receive periodic payment obligations.
To consistently meet the terms of the IRC 130 provisions, the periodic payments in general are impossible to accelerate, increase, or decrease by the buyer.
It’s critical for you to understand that not all accidents can be compensated with structured settlements. In instances of accidents where you were not seriously injured and you are capable of going back to work after a medical treatment, this settlement will most likely not be applied on your situation.
Structured settlements are made to provide money to individuals who are severely injured and need long term medical treatment, wherein the medical expenditures and living costs should be met over a lengthened period of time.
- A structured settlement purchaser will work with you if you wish to cash in your settlement money soon from:
- Worker compensation cases where you are incapable of going back to work or can only work with restricted capacity.
- In cases of temporary or permanent disability and you’re required to rest for a very long time to recover.
- Wrongful death cases where the immediate family is left without income.