Tuesday, November 25, 2014, AM | Leave Comment
When an injured person agrees to settle a personal injury claim, it’s ordinarily done by signing off on a release of claims and acceptance of a lump sum amount of money as compensation for their injury.
In a structured settlement, that claimant would agree to settle their injury claim by signing the release.
Rather than a lump sum settlement payment, they would receive periodic payments on an agreed schedule over a period of years.
Structured settlements have their advantages and disadvantages, and it is important to know the basics if you plan to engage in any of these activities so you know what to expect.
Keep reading for a quick lesson in structured settlements, and how they could affect your finances.
Protection from Dissipation
A person who was injured in an accident who now has long term special needs might find an advantage in a structured settlement.
They won’t be able to pay for future care needs if their settlement funds are spent and gone. With a structured settlement, future care needs are addressed and budgeted annually.
A structured settlement arrangement might also benefit a minor. Disbursements might be made before college, during college and beyond college. This assures payment for an education and expenses beyond college when phasing into one’s first job.
The Special Needs Trust
Money in a special needs trust is held for the benefit of a physically or mentally disabled person.
Money from the trust can be used for the disabled person while they are receiving government benefits such as Medicaid or Social Security Income at the same time.
This is particularly beneficial when the injured person no longer has the mental capacity to make their own independent financial decisions.
If a special needs trust is to be established, it should be done under the guidance of qualified planners.
Changing the Structured Settlement
Once you’ve agreed to it in writing, it’s nearly impossible to change a structured settlement. You’re stuck with the frequency of payments and their amount.
Structured settlements are also becoming increasingly difficult to sell. About 30 states prohibit the sale of structured settlements.
The structured settlement agreement itself might even prohibit its assignment.
Wall Street Collapse
A structured settlement is an annuity sold on Wall Street. If Wall Street collapses, so does your structured settlement.
If it’s a 20 year annuity, we can’t predict what’s going to happen 11 years from now.
While you might not worry about what will happen in a decade or more, this is still something to consider.
Whether any special needs exist for the injured person appears to be the issue that the decision turns on between lump sum and structured settlements.
Purchasing the annuity is less costly for the insurer. No matter what your involvement is with structured settlements, it is smart to meet with a financial advisor who can give you advice about your particular situation and your finances so that you don’t run into any problems along the way.
This article was written by Dixie Somers, a freelance writer who loves to write for business, finance and women’s interests. She lives in Arizona with her husband and three beautiful daughters.
Dixie got advice for this article from the professionals of myLumpsum.com who specialize in personal injury settlements.Facebook.com/doable.finance
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