8/22/2017

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Structured Settlements

Structured settlements are designed to pay monthly, yearly, periodic payments every few years, or in any other timeframe the parties to the settlement agree instead of making the payment in a single lump sum, especially if the lump sum balance is a large amount of money.

A structured settlement is established by negotiating an agreement that include periodic payments excludable from gross income under certain Internal Revenue Codes and is created by parties of a suit or agreement and by a person or persons who assumes liability for such payments.

Sometimes called periodic payments, structured settlements can come from lawsuit settlements, lottery winnings, casino winnings, different types of annuities, trust deeds and mortgage notes, workers' compensation, or other sources. A structured settlement guarantees future income, often through the purchase of annuities.

If you are awarded a judgment in court against a company due to misconduct, negligence, discrimination, if you suffer a serious injury or if there is a death caused by improper use of equipment, an automobile accident, or for other reasons, it is called a periodic payment judgment. Even if you settle your case out of court, a structured form of payment may be worked out between the parties.

In most cases, in a settlement, an annuity is purchased from a insurance company or a company specializing in annuities. A dollar amount for the annuity is generally paid up front and the annuity then provides a specified dollar amount of income on a scheduled basis.

Lottery winnings may be taken in a lump sum payment, but it can be very costly. The tax liability may add up to be fifty percent or more of the total money won. If the money is taken in increments of yearly installments, you may forego or significantly decrease a large sum tax payment by spreading the taxes over the years it takes to receive the full amount of the winnings.

How a mortgage note is repaid depends on who is doing the lending and the relationship between the lender and the borrower. If it is money that is loaned, in most cases, it will be expected to be paid back in installments over a certain period of time. The installments can be set up as weekly, bi-weekly, monthly, quarterly, yearly, or for other periods.

An annuity is an investment vehicle that allows one party, usually an insurance company, to receive cash or other property from a second party in exchange for the promise of periodic payments over a specified period of time.

Structured settlements can range from thousands of dollars upwards into the millions. All structured settlements are different and are regulated by federal and state laws.

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