What is a Structured Settlement
A common question asked by parents of injured children is "What is a structured settlement for minors and how will it help my child?" In the simplest terms, it is a financial tool for safeguarding monetary awards acquired through a lawsuit.
The best approach for fully understanding what is a structured settlement is to consult with a lawyer. This is especially important when children have sustained injuries due to an automobile accident or negligence of another person.
Since there are so many variables involved with personal injury cases, it is imperative to get help from legal professionals. With that being said, it is helpful to have a basic understanding of structured settlement annuities and compensation plans.
Structured settlements are most often used to compensate people for personal injury. This might stem from an automobile accident, medical malpractice, defective product, or other acts which result in chronic or permanent injuries.
Monetary award amounts are determined by a judge or negotiated through attorneys and insurance companies. Once the amount is established the Plaintiff purchases annuities through a life insurance company to guarantee payments.
Payments are distributed to Defendants for a predetermined amount of time. Distributions are based upon circumstances of the case. For example, if a child is paralyzed and requires lifelong care, they might receive annuity payments for life. If the child is expected to fully recover, but requires physical therapy for an extended period, annuities might be paid for 5 years.
Annuity payments to minors tend to get more complicated than when paid to adults. Since children cannot enter into legal agreements their parents act as the fiduciary and responsible for handling payments.
With that said, payments can be placed into a trust which can be accessed when the child reaches adulthood. Financial agreements can include lump sum payments to cover healthcare expenses, medical devices, and provide for educational needs.
Settlements might also include lump sum payments to be given to the child when they achieve certain milestones. These might include graduating from high school or college, or buying a house.
It should be noted that structured settlement payments are regulated by state Insurance Commissioners. This isolates them from reduction from economic or interest rate changes. Furthermore, payments are exempt from state and federal income taxes.
For these reasons, structured settlements are one of the safest approaches to protecting your child's financial future. Annuity payments deliver a guaranteed stream of income for several years to ensure the child receives adequate care and financial compensation.
Certainly, parents should explore every available option to determine which is best suited for their personal situation. Other options include:
• Establishing a trust
• Accepting lump sum payment which is held in a low-interest account until the child reaches legal maturity
• Place lump sum funds into 529 plans
You can learn more about structured settlements in our personal finance blog. We offer a wide selection of content to help people find solutions to financial challenges. Topics range from bankruptcy to real estate investing, along with tax tips and ways to overcome debt problems.
Published on July 30, 2013 at 04:00 PM