A Strutured Settlement is a type of annuity that offers a lump sum of money that is payable to you upon the occurrence of a certain event. The lump sum is tax-free and can be inherited, which makes it a very attractive option. In addition, a structured settlement is typically much safer than a traditional annuity.
Lump sum vs structured settlement annuity
When it comes to deciding whether a structured settlement is more beneficial than a lump sum payment, there are many factors to consider. Structured settlements can be a great way to manage large amounts of money over time. If you are considering a structured settlement, contact a financial adviser or attorney to determine if it is right for you.
A structured settlement is a legally binding agreement between parties to receive periodic payments from a third party for a specific period of time. These payments are usually tax-free.
One of the major advantages of a structured settlement is that they are guaranteed. An annuity is an insurance policy that guarantees a certain amount of money over a set time. It may be set up to produce a monthly income, or to make annual payments.
Many people choose to get a lump sum rather than a structured settlement. A lump sum can be used for immediate needs, such as paying off debt or purchasing a new home. However, it can also be used for frivolous spending, which can be detrimental to your long-term financial health.
The benefits of a structured settlement are numerous. They provide a tax-free investment, as well as a way to avoid the hassles of managing a large sum of cash.
Tax-free payments to the beneficiary
Structured settlement payments are tax free to the beneficiary, which is the person who is designated to receive them. However, it is important to understand the IRS rules regarding structured settlements.
As the name implies, structured settlements provide annuity-style periodic payments for a long period of time. These payments are intended to provide financial security and an income stream.
In the case of death of the annuitant, the remaining structured settlement funds are transferred to a primary or secondary beneficiary. The secondary beneficiary ensures the disbursement of funds as the owner of the annuity wishes.
While the payment from a structured settlement is not taxable, the payouts from the secondary beneficiary are taxable. This is because the payments are made by the insurance company and cannot be commutated.
A properly structured settlement provides a steady stream of income tax free. They are also designed to protect a client’s eligibility for social security or Medicaid.
For a plaintiff, a structured settlement can serve as a lifetime income source. It can help reduce court backlogs and expenses in processing claims. If the plaintiff has a difficult time managing money, a structured settlement can provide the security of a predictable income stream for years to come.
If the plaintiff dies, the structured settlement funds pass to the surviving spouse, child or other beneficiaries. In the case of a minor, funds cannot be accessed until they reach legal age.
Can be inherited
Whether it is a lifelong settlement or a one-time lump sum payout, the options are vast. It is a good idea to discuss your options with a trusted financial advisor. Some states require that you appoint a guardian to oversee your inherited assets.
Fortunately, there are several reputable firms that will help you through the process. Several of them have websites, blogs, and newsletters that are geared toward people in your situation. A lawyer will likely have a better handle on your unique situation.
The best way to inherit a structured settlement is to be proactive. For instance, you can assign 50 percent of your settlement to your spouse. This is a smart move that will ensure that you will be able to pass your annuity on to a worthy successor. You can also assign the remainder to your kids. However, it is important to remember that they will not get their money until they reach adulthood.
In addition to the above mentioned options, you may also consider selling some of your settlement. There are several reasons for this, including liquidity and tax benefits. Selling part of the settlement will give you a bigger check upfront. But if you are going to do this, you should also have a plan in place for the unanticipated.