Personal Injury and Structured Settlement Annuities
The majority of structured settlement annuities are established for plaintiffs settling cases involving personal physical injuries. In fact, structured settlements were originally designed by Congress specifically to benefit personal injury recipients. If You Are A Plaintiff Involved In Such A Case, A Thorough Evaluation Of Whether A Structured Settlement Is Right In Your Particular Situation Is Certainly Worth Your Time And Effort.
WARNING: STRUCTURED SETTLEMENT ANNUITIES ARE NOT RIGHT FOR EVERYONE.
Structured settlements are meant to provide you or your family members with guaranteed future payments. These payments can be designed to pay you for years into the future even for the remainder of your life if desired. These payments can offset or replace lost future income, correspond with projected future medical needs, or provide for known future expenses such as college tuition, the purchase of a first home, or even provide a guaranteed retirement income.
If you do not need regular, guaranteed payments, then Structured Settlement Annuities are probably NOT right for you.
Structured settlement annuities are especially valuable planning tools for minors involved in personal physical injury cases.
For example, if a minor receives a cash settlement, that settlement is likely to be paid to the registry of the court in which the case was brought. This is called a “conservatorship”. Upon turning the age of majority (18 in most states) the child, newly emancipated, will have access to the entire lump sum of cash in the court registry. A significant cash lump sum in the hands of an 18 year old can be overwhelming, and potentially dangerous. Also, rates of return in most court registry accounts are dismal, since the allowable investments in such accounts are usually restricted to such things as CDs, US treasury obligations and municipal bonds.
In addition, a conservatorship must usually file an annual report with the court, documenting income, expenses and asset values. This can involve attorneys and/or CPA’s to compile and file the report, and, of course, associated fees and expenses, which recur each year until the conservatorship is dissolved at the child’s 18th birthday. Then there is the issue of taxes. A conservatorship is not a tax-exempt account. Taxable income from a conservatorship will usually flow to parent or guardians tax return, until the child is old enough to file on their own.
Generally, the returns on structured settlement annuities significantly outpace the rates of return in most court registry accounts, and the future payments can be scheduled to be disbursed according to a well thought-out and carefully constructed settlement plan, which can conceivably encompass the entire life of the child. And once in place, there are NO ongoing fees, expenses, or reports required to the court.
What makes structured settlement annuities unique to plaintiffs involved in personal physical injury cases – as defined in IRC Sec. 104(a)(1) and (2) is that the future payments (principal and interest) are completely exempt from federal, state, and local taxes.
The only requirements that need to be met to receive the favorable tax treatment are that the structured payments must be determined at the time of settlement and incorporated into the settlement documents, and the check to fund the future payments must be sent directly from the defendant to the annuity company (or annuity company’s assignment company) who will be responsible for making the future payments. This is done in order ensure that constructive receipt is not violated.
To discover if and how a structured settlement annuity could complement your settlement plan, please contact me to discuss your unique situation.
