3 Things To Understand If You Are Considering A Structured Settlement For Your Lawsuit Proceeds
After winning a large settlement in a personal injury case, your lawyer might talk to you about how you would like to receive the money. Your two options will be a lump sum payment and a structured settlement. If you feel that receiving the money over time in the form of payments would be better, you may want to choose a structured settlement. Before you do, there are several things you should know.
How The Immediate Expenses Are Paid
The first thing to understand is that all your immediate accident-related expenses will be paid before the money is placed in a structured settlement. This can include the amount of money you owe the lawyer for handling your case and any medical bills you have incurred. This is done to allow a person to pay their immediate debts right away, yet they will then have a large investment they can receive funds from over time.
You Can Choose The Terms
Your lawyer will also talk to you about terms and companies. You can choose the company you use for the structured settlement, and you will also be able to choose the terms of the investment. This includes making the following decisions:
- How often you would like to receive payments – You may be able to choose anywhere from monthly to annually.
- How much the payments will be or the length of the investment – You can either choose a length of time for the settlement or an amount for the payments. If you choose an amount, you may have to agree on how you will receive any remaining balance if there is money left after the last payment.
When you set it up, you can also include details about how you would like the money transferred if you pass away before you have taken all the payments. This is an important aspect to look into when setting up your structured settlement.
You May Receive Tax Advantages
One of the reasons people choose structured settlements over lump-sum payments is to help them ration their money. It can be very easy to spend a large settlement quickly if you have access to all of it. On the other hand, if you receive smaller payments over time, this money may last for a much longer time. If you are great at budgeting and investing, choosing a structured settlement might not be the best choice for you; however, you should consider the tax implications of this money.
If you receive a lump-sum payment and invest the entire thing, you will most likely have to pay taxes on all the interest and dividends you earn. You will not typically have to pay taxes on the settlement money itself though. The problem with this is that the interest can be very high if your settlement amount was high.
With a structured settlement, you will also not have to pay taxes on the actual settlement amount, but you will have to pay taxes on interest earned. The difference is that you will only accrue taxes for the interest on the money you take from the account. Because you are taking it in smaller payments over a series of years, the interest amount will be lower, and this will cause your tax liability on the investment to be lower too.
You do not have to choose a structured settlement for the proceeds you are awarded through your personal injury lawsuit, but this can be a good option for many people. If you are interested in learning more about personal injury cases or settlement options, contact a personal injury lawyer today from a firm like Lawyer, Lawyer, Dutton & Drake LLP.