Have you been awarded a large amount of money from a
lawsuit? If so, you might be curious about structured settlements. The court
will offer you a choice of how and when you want to receive your cash reward.
You may choose to receive it all at once, or you can set up a long term payment
plan. This long term payment plan is what is known as a structured settlement.
Before you make any decisions regarding your reward money it is a good idea to
learn as much as you can about how structured settlements work. Here are some
more answers to your structured settlement questions.
Why Would I Want to Create a Structured Settlement?
There are many advantages to receiving your reward money in
the form of a structured settlement. It will save you in interest taxes on any
investments you make. It will also allow you to set up a steady stream of
income so that you can properly plan for your future. Structured payments help
ensure that you don’t accidentally spend all of your compensation at one time.
Studies clearly show that compensation recipients tend to spend less of their
reward if it is provided for them through several payments over a long period
of time.
Will My Reward Be Any Less if I Choose a Structured Payout?
No. The amount that the court has awarded you will not
change. You will receive the same amount whether you choose a structured payout
plan or if you choose to get all of the money at once. However, structured settlement payments can help save you money in the form of taxes.
How Much Will a Structured Settlement Save Me in Taxes?
The amount that a structured settlement could save you in
taxes could be substantial. You can expect to save approximately 25% to 35% of
your total reward in state and federal taxes on any income your reward will
generate. All settlement funds are tax free, but you will be taxed on any
interest you accrue if you invest any of your reward. If you invest the single
large lump sum you will end up paying more in taxes than if you invest using a
structured payment plan.
How Much Flexibility Will I Have to Set Up This Form of Payment?
Structured settlements offer a tremendous amount of
flexibility in determining how and when the payments will be made. You can set
up equal payments over a set number of years. An example of this would be to
receive $1000 a month for 20 years. You can set up payments on a per week
basis, or you can set up monthly or bi-monthly payments. The payments do not
have to be equal either. You could set up specific periods of time that pay out
more than others. For example, if you were injured in an accident and require a
new motorized wheelchair every 5 years, you could set up a payment plan that
pays out more money every 5 years in addition to the regular monthly payments.
This would allow you to pay for what you need when you need it.
What If I Change My Mind?
Once a structured settlement has been created it cannot be
changed or altered. So if you currently receive $500 a month from a structured
settlement and you need $1000 the next month, you cannot change your agreement.
You can sell part of your total monetary reward to a company in exchange for
receiving a lump sum of money now, when you need it. The result of this form of transaction will
be that you get all of your money upfront, but you will lose a percentage of it
to the company.
Overall, structured settlements are very helpful to
plaintiffs, but it is not recommended that you pursue this form of payment
until you speak with a lawyer or tax professional.
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