If you’ve been hurt in an accident someone else caused, you can file a lawsuit to demand they compensate you for what you’ve suffered as a result. One common way to resolve a personal injury claim is by negotiating a structured personal injury settlement with the liable party.
In a structured personal injury settlement, you receive compensation for your injuries over time through multiple payments rather than a single lump sum payment. Structured personal injury settlements offer many advantages compared to traditional lump sum settlements, including maximizing your financial recovery and managing your expenses over the long term.
What Is a Structured Settlement?
A structured settlement refers to how a defendant in a personal injury lawsuit pays agreed-upon settlement compensation to the plaintiff. Rather than paying the full amount upfront, a structured settlement allows the defendant to pay the compensation over a schedule of structured settlement payments.
Sometimes, the defendant or their insurance company remains responsible for making the scheduled payments until the full amount is paid. However, structured settlements often use annuity contracts to secure payment. The defendant or insurance company funds the annuity purchase and assigns its payment obligation to the annuity company.
When Could a Structured Settlement Be Used for a Personal Injury Settlement?
Structured settlements frequently appear in personal injury cases involving significant injuries or long-term losses, including the following types of cases:
- Medical malpractice, since injuries and health complications caused by negligent care can cause long-term issues for patients
- Wrongful death, as such claims may entitle families to recover a loved one’s future financial contributions
- Minors, since they may require long-term care or special education services, and may lose the ability to engage in gainful employment
- Product liability, as accidents with dangerous or defective products can cause life-altering injuries like burns, severe traumatic brain injuries, spinal cord injuries, or amputations.
Who Are the Parties in a Structured Settlement?
Various parties carry out the terms of a structured settlement agreement and facilitate payment of settlement funds to the injured person. These parties include:
- Annuitant – The accident victim
- Owner of the annuity – The defendant or insurance company that purchases the annuity, securing the settlement payments, or the assignment company that assumes responsibility for paying the settlement payments
- Payee – A party entitled to receive payments under the settlement, such as the accident victim, a trustee, or the accident victim’s medical providers
- Beneficiary – The party or parties designated to continue receiving settlement payments in case of the accident victim’s death.
What Are the Different Payment Options for a Structured Settlement?
Different structured settlements use different schedules for paying settlement compensation to personal injury victims. Some pay the total settlement amount over equal periodic payments, such as monthly or quarterly payments. Others provide an accident victim with a large initial payment so the victim can cover existing debts and other immediate expenses, followed by smaller, regular future payments. Still, others use a ballooning payment schedule, with structured payments that gradually increase over time to ensure the purchasing power of the settlement payments remains stable despite inflation.
Is Income Tax Due on a Personal Structured Settlement?
A personal structured settlement can help accident victims avoid paying income taxes on settlement funds. Accident victims typically do not pay income taxes on the portion of a settlement or judgment that represents compensation for their past or future losses. However, they may owe income taxes on interest awarded in a large lump sum payout. Depending on their terms, structured personal injury settlements may help accident victims avoid tax liability on interest. An attorney can advise you on these tax benefits.
How Do You Know If a Structured Settlement Is the Best Option for Your Georgia Personal Injury Claim?
A structured settlement can benefit defendants in personal injury claims by allowing them to spread guaranteed payments over time or pass on their payment obligations through an annuity-backed structured settlement.
These settlements offer benefits for accident victims, too, including:
Increased total compensation – Allowing a defendant to spread their financial liability in a settlement over time allows an accident victim to negotiate higher total compensation in a settlement and seek a full financial recovery of their expenses or losses.
Better financial management – Structured settlements provide accident victims with a steady stream of future income over months or years, which can offer long-term financial security to those individuals who cannot work due to their injuries or disabilities. The structured schedule of payments can ensure they have money in their bank account to cover medical expenses they have already incurred and their future medical expenses. A structured settlement may also come with tax advantages for the injured party.
Preserved eligibility for government benefits – A lump sum settlement can give an accident victim who becomes disabled due to their injuries a substantial asset that may disqualify them from Medicaid or other means-tested government benefits. Structured settlements can help accident victims preserve their eligibility for benefits that can help with long-term care expenses.
However, structured settlements also have potential drawbacks, such as:
- Lack of liquidity and flexibility – Structured settlements require accident victims to wait months or years to receive the total compensation due under the settlement. This lack of immediate liquidity can lead to financial difficulties if a person’s circumstances change or unexpected significant expenses arise.
- Financial risk – Fixed payments under a structured settlement will gradually lose their purchasing power due to inflation. Personal injury plaintiffs also face the risk that a defendant may default on their payment obligations under a structured settlement, or the annuity company funding the settlement could become insolvent.
- Costs – Structured settlements will have initial and ongoing administrative expenses, such as fees for setting up and managing a structured settlement annuity, escrow, or trust, which can reduce the plaintiff’s compensation.
Contact a Georgia Personal Injury Lawyer Today
A structured personal injury settlement may help you receive the full compensation you need after an accident that wasn’t your fault. Our firm has over 85 years of combined legal experience. For more than three decades, our attorneys have fulfilled our firm’s core principles of reputation, respect, and results and pursued just compensation for our clients. As one former client shares about our law firm:
“There are some good people – from the front desk to the back door. Everybody is very nice and warm to you. I can call Kenny if anything happens, and he will help me.”
Contact Sherrod & Bernard, P.C. today for a free consultation with a personal injury attorney to learn more about a structured settlement and how it can help you seek financial resources to help with your long-term recovery.
