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What is a Structured Settlement?
Structured settlements have long been part of the legal system – first introduced to both America and Canada in the 1970’s they are regular practice for anyone who has won a sum of money. But just what is it?
It is a sum of money that has been won (usually as part of a legal claim, such as a claim for personal injury). Instead of receiving the entire amount in one lump sum, as had been traditional (and indeed the only method), by using a structured settlement the party receiving the money does so at regular intervals.
Such intervals are decided by the receiver of the money. It could be any length of time, but most common is monthly or annual instalments.
They will vary wildly from settlement to settlement. This is normal because there are so many different cases that call for monthly settlements. All sorts of circumstances have a bearing – from the needs of the person receiving the money to the finances of the person/company/institution paying it.
An important factor that needs to be considered when looking at a structured settlement is that of inflation. Obviously if the money is being paid over a large amount of time the payments, if they were to stay the same, would gradually become of less worth in ‘real value’. This is something that needs to be addressed in the settlement.
They are legally binding. That is true of both sides, an important factor. If a structured settlement is decided on then you are not able to change it to get the remainder in a lump sum, even if you wanted to.
Why Have a Structured Settlement?
For many people it has a number of positives attached to it. It is important that you consider all sides of a structured settlement before deciding on it.
o Regular payments makes life easier. Whilst a lump sum is nice it is very easy to spend on nothing. A regular monthly payment allows them to spread out their largesse and take full advantage.
o It also helps give tax breaks. The smaller payments will attract less in tax payments than a lump sum would. This means that you will be able to get more of the money by having a structured settlement than you would by having a lump sum.
o For some who, such as those who have been seriously injured, regular monthly costs are incurred – such as health bills or rehabilitation. This settlement nicely meets those on a regular basis rather than eating into savings.
o If it is a person or small company that is having to pay the settlement then it could well be that they are unable to afford to make the full amount payment. That being the case they can arrange a structured settlement, or even have one forced on them by the courts.