When should I look at a Structured Settlement?

  • By admin
  • 7 December, 2012
  • Comments Off on When should I look at a Structured Settlement?

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When a case is being settled it is important to review the Medicare Set-Aside (MSA)  funding and assess whether a lump sum payment or a structured settlement in the form of an annuity is more appropriate for the beneficiary.

A lump sum payment is a one-time payment made to the beneficiary.  The beneficiary must place those funds into an interest bearing account and use the funds only for their intended purpose.   The individual beneficiary must be highly disciplined and financially responsible in order to utilize those funds for their intended purposes.  If the funds are spent inappropriately the beneficiary may end up without the ability to fund his/her future medical care as it relates to the settlement.  Medicare will not pick up the tab for MSA related injuries or illness if the funding has been utilized inappropriately.  The beneficiary could end up financially insolvent.

Some people will do better by accepting a lump sum settlement, and investing it themselves. Many standard investments will give a greater long-term return than the annuities used in structured settlements.

A structured settlement is typically created through the purchase of an annuity which guarantees future periodic payments to the beneficiary.  There are several benefits to both parties for utilizing a structured annuity.

Funding of a structured annuity is generally less expensive to purchase than making a lump sum payout.  When an annuity is purchased through an insurance company, the insurance company guarantees a structured payout to the beneficiary.

The beneficiary may experience certain tax advantages in obtaining periodic payments in lieu of a lump sum payment.    A tax expert should be consulted if there are questions regarding taxation of the settlement funds.  Also see Tax Benefits to Structured Settlements post.

There is the assurance to the beneficiary and payer that the money set-aside for future medicals is protected and guaranteed.

A reversion clause can be incorporated into the agreement should the beneficiary die prematurely.  In this case the remaining capital can be returned to the initial payer or partially returned to the beneficiary’s survivors.

Both a lump sum and a structured settlement may be the target of future unrelated litigated issues.  A structured annuity is less vulnerable to immediate dissolution.

A severely disabled beneficiary may be better served by placing the funds into a special needs trust rather than dispersing the funds into a lump sum or structured settlement.  A beneficiary who may receive or expects to receive Medicaid or other public assistance should consult with a disabilities financial counselor.

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