What is a Structured Settlement no comments
Structured settlements were created as a means to compensate the victims of accidents and injuries. The idea behind them was to provide income for people who were severely hurt that would be paid out in smaller amounts over a long period of time, possibly for the entire life time of the individual receiving them. In such a way, the person would not show too much income to prevent them from qualifying for Medicaid to help cover the costs of their medical expenses.
The Basics of Structured Settlements
Structured settlements are annuity contracts that are set up by an insurance company. They are intended to provide for the payment of monetary damages over a given amount of time. They are generally arranged for personal injuries that an individual sustains as a result of an accident.
Structured settlement annuities also promise that if the owner dies, then his or her beneficiary will receive financial compensation. This could be in the form of a single one time tax free payment. Alternatively, it might be made as a series of such payments to the beneficiaries for a certain amount of time.
Structured settlements are generally set up by court actions and court orders. They typically come into existence because of a lawsuit. When the injured party is deemed to have been wronged, then the judge will order that a structured settlement be created to provide financial compensation for the injuries of the person.
The Scalability of Structured Settlement Payments
It is entirely legal for structured settlement payments to be sold. The majority of the states provide a Structured Settlement Protection Act. Such laws permit an individual to sell his or her payments, assuming that the right conditions are satisfied. The person must have received full and fair disclosure on the financial terms involved with the sale. People must also be given a cooling off period in which they can change their minds and void the sale if they reconsider after signing the paper work. Individuals must also be counseled to get professional advice on the sale.
After these criteria have been met, a judge will hold a hearing to contemplate the case and determine whether the sale may go through or not. Such a judge will look at the person’s financial condition, as well as for what they wish to use the money. He or she will then decide if the person’s best interests are truly served in selling the payments for a one time lump sum. The judge has to give a court order for the sale to be approved and go through.
Tax Treatment of Structured Settlements
In the majority of cases, payments from annuities on structured settlements are not taxed. This is because annuities are usually set up to be treated by the Internal Revenue Service as tax free payments, especially in the cases of sickness or injury. Since the Internal Revenue Service does not consider money from such scenarios to be income, they should not be taxable. The Federal government has gone through a few different steps to make certain that payments received as a result of personal injuries are not taxable.