A structured settlement is the settlement of a legal claim that is paid out over time, in the form of an annuity rather than being paid in a lump sum. Structured settlements may offer tax advantages to the recipient, and may be of particular interest to an injured minor or person who faces long-term disability.
Many people who have obtained structured settlements through their personal injury or workers' compensation claims wonder if they should try to sell their settlement in return for a lump sum payment. This may be a relatively modest curiosity, piqued by an advertisement announcing "It's your money!" and promising cash payment. Or it may be based upon an immediate need for funds.
Due to legal restrictions under state law, selling a structured settlement is not always possible. Even when possible it is not necessarily an economically wise decision.
Your Structured Settlement Should Work For You
The best time to decide that a structured settlement is not right for you is before you consent to such a settlement. If you work out a settlement package that is in your best interest at the outset, you will be able to maximize the value of your settlement and get the greatest tax benefit from the structured portion of any settlement.
When negotiating a settlement, you may press instead for a lump sum settlement, for periodic lump sum payments in addition to smaller annual payments, or for a lump sum to be issued at a future date when you anticipate a particular need.
Remember that the companies which purchase structured settlements intend to profit from the purchase of your settlement. Their profit comes out of the payments you would otherwise receive.
Recall also that if your future earning capacity is impaired as a result of your injury, you should consider your future needs when you are making any decision regarding the sale of your settlement.
Restrictions on Selling Settlements
There are laws in approximately two thirds of the states that restrict the sale of structured settlements, and additional federal regulations apply to the sale of structured settlements.
You should expect to have to obtain court approval for the sale, and most states have statutes in effect that regulate the process of transferring a structured settlement to the buyer.
Restrictions may also exist as a matter of contract, under the policies for the annuities from which the settlement is to be paid. The insurance company that issued the annuities for the structured settlement may refuse to cooperate with the sale of a settlement, citing policy language and asserting that payments cannot be assigned.
Tax Consequences
As a typical structured settlement is designed to provide significant tax advantages to the injured plaintiff, there can be significant tax consequences associated with selling part or all of a settlement. Even if payments made under a structured settlement are not taxed, sometimes a lump sum received through the sale of the settlement will be subject to taxation.
Shop Around For Offers
If you are approached about selling your settlement, or are looking for a buyer, don't take the first offer you receive.
You will almost always benefit from consulting with different brokers or buyers in relation to your settlement. You should also take care that you are working with an established, reputable buyer.
Consult A Lawyer
It is wise to consult a lawyer in relation to the sale of your settlement before signing a contract. A lawyer can help ensure that your rights are protected, and that you will not be subject to consequences for events outside of your control. For example if the company that purchases your settlement is later unable to collect payments from the insurance company which issued the annuities in your settlement package, the purchaser may attempt to recover any payment made to you.
A lawyer will be able to tell you if the terms of the purchase agreement are reasonable, and may also be able to advise you as to whether the offer made for your settlement is adequate.