The government grants favorable tax treatment to structured settlements because these settlements keep injured people and their families from relying on public assistance to provide for their needs. Structured settlements are also not considered a gain in income; rather they meant to help people return to their financial condition before they were harmed.
Because of this, the types of cases considered appropriate for structured settlement generally involve serious injury or death.
Structured settlements, as compared to lump-sum awards, are periodic payments given to the prevailing party in a lawsuit over a period of years.
Examples of Structured Settlements
The types of cases that may be resolved with structured settlements are varied. Here are some structured settlement examples:
- Personal injury settlements – These types of structured settlements resolve lawsuits filed by those who claim the actions of another person or a company caused serious injuries. Having a structured settlement can help a person navigate life after personal injury.
- Wrongful death settlements – Wrongful death settlements resolve lawsuits filed by the survivors of people who died because of the negligent actions of another person or corporation.
- Workers’ compensation settlements – Workers’ compensation cases brought against employers on behalf of an employee who was injured or killed on the job may be settled through a workers’ compensation settlement. The U.S. tax code was amended in 1997 to encourage the use of structured settlements in workers’ compensation cases.
- Vaccine injury settlements – People who were injured by required vaccinations may be awarded a vaccine injury settlement to resolve claims filed with the federal government’s Vaccine Injury Compensation Trust Fund.
- Discrimination settlements – Although awards in discrimination cases are generally taxable, the distribution of funds through a structured settlement eases that requirement by allowing the recipient to defer taxes until payments are received.
- Wrongful imprisonment settlements – When someone is exonerated after spending time in prison, they may file a lawsuit against the government agencies that contributed to their wrongful conviction. Structured settlements can help those who have been wrongfully incarcerated manage their finances after their release.
- Molestation and sexual abuse settlements – A school district in the San Francisco Bay area paid an $8.25 million settlement to the families of three girls who had been molested by a fifth-grade teacher. Each girl received a $2.75 million structured settlement in the case, according to a television news report.
How Do You Get a Structured Settlement?
According to the National Structured Settlements Trade Association (NSSTA), structured settlements can be best suited for people who most need this stream of income to support their needs. Often, these are people who are unable to work and their dependents:
- These individuals may have disabilities, which could be permanent or temporary. The disabilities may prevent them from holding employment and may result in ongoing expenses for medical and occupational needs.
- People who suffered other severe injuries that created the need for long-term care may similarly benefit from structured settlements.
- Juveniles, people who have been found incompetent or those who have ongoing financial needs as a result of the injuries claimed in the legal case are often awarded structured settlements.
- In wrongful death cases, structured settlements are awarded to surviving spouses and children to help them meet financial needs that were previously filled by the deceased.
- More than half of all Vaccine Injury Compensation Fund claims for young children that were physically injured by vaccines are resolved with structured settlements.
In general, the more serious the injury, the more likely a structured settlement will be used, according to surveys cited by NSSTA.
Types of Structured Settlement Payments
Structured settlement payments are typically distributed through annuities. The payment schedules vary depending on the type of annuity selected.
- Temporary life annuity – Temporary life annuities provide payments for your entire life but no money for beneficiaries when you die.
- Lump sum – Some annuities pay a lump sum at a later date. If you die before that date, in some instances, your beneficiary would receive that sum on the designated date.
- Life Contingent – Under this lump sum arrangement, your beneficiary wouldn’t be paid if you die before the date.
- Joint and survivor annuity – Joint and survivor annuities issue periodic payments that continue to pay your beneficiary after you die.