What Is A Structured Settlement?
Quite simply, it can be defined as periodic payments over time. Structured settlements are actually annuities underwritten by the largest life insurance companies in the United States.
Income tax-free structured settlements (otherwise known as “Qualified” structured settlements) are annuities that are used when settling cases of personal physical injury or wrongful death. They are not, however, annuities that you can get from a financial planner, a bank, or any of the other places you might buy standard annuities. They may only be written by structured settlement brokers who have specialized training and experience.
Qualified structured settlements are free from income taxes “on account of personal physical injury” or wrongful death per Section 104 (a)(2) of the Internal Revenue Code.
If you die while receiving payments, your beneficiary steps into your place and the treatment of the payments would remain income tax-free.
Structured settlement annuities can be paid out in:
- Weekly, bi-weekly, monthly, quarterly, semi-annually, annually, or every certain number of years
- As single lump sum payments
- For a lifetime or a certain period of time
- They may Include “cost of living” adjustments
- Or, any combination of the above.
STRUCTURED SETTLEMENTS FOR NON-PHYSICAL INJURY CASES
It is also possible to do a structured settlement in a case where no physical injury or wrongful death occurred. For those types of cases, an annuity called a “Non-Qualified” structured settlement may be done. It is important to understand that they are very similar to a “Qualified” Structured Settlement in many ways, except the way they are treated from a tax perspective. “Non-Qualified” Structured Settlements are income tax-deferred—NOT income tax-free.
- The payment streams are still flexible and creative plans can still be built, unlike a standard annuity.
- It must still be written by an experienced, specially trained structured settlement specialist to ensure it is set up properly.