Your Structured Settlement and You

You’ve been granted a structured settlement. Now what? What does it mean? How does it work? And what can and can’t you do about it? These are all valid questions and concerns and this article will hopefully answer them for you.

Structured settlements first originated in Canada, with the Thalidomide law suits of the late 1960’s and 70’s. The families of 115 children affected with severe birth defects from their mothers having taken the drug were granted an undisclosed amount. This amount as to be paid over a number of years to the families by the drug company that had sold the drug, as well as the pharmaceutical company that developed the drug in the first place. A structured settlement is simply one that is paid in a set amount on a regular periodic basis to an individual by another individual or a company representing an individual.

According to the IRS, structured settlements can only be termed as such when the payee is a company, or a company representing an individual, such as an insurance company. Since your employer’s insurance company is the one ultimately paying out your worker’s compensation claim, your monthly payments from them therefore, qualify as a structured settlement. The money that your grandma gives you every year on your birthday does not. The other defining feature of a structured settlement is that there must be a binding legal agreement in place between the payee and the one being paid. So, your brother-in-law’s handshake promising to repay you that beer tab over the course of the next four pay days doesn’t qualify THAT as a structured settlement, either.

What you can expect is a bunch of legal forms to fill out, or at least to sign. Lawyers thrive on the amount of paperwork they can cram into a legally binding agreement of any kind, and structured settlements are no different. As part of this paperwork, you may be given the choice to receive your structured settlement regular payments as a direct deposit into your bank account. This will mean having to have your banking information handy. It will also mean that you’ll have to remember to check on the account at the appointed tie, to ensure that there are no difficulties with the payment. You’ll also need to obtain contact information from “the other side” of the table, just in case you do have any troubles with receiving your payment. Having an account manager or other individual to contact when the payment is late, or is somehow missed is vital to you and to the company as well. They’ve promised to pay you, and if they don’t, they are in legal troubles. No company wants legal troubles over an accounting err.

The money is yours. There are no restrictions as to what you can and can’t spend it on, unless specified in the settlement agreement. A settlement on behalf of a child, for example, may specify that the money must be used for the child’s education, or that it must simply be kept in trust until the child is of age to take responsibility for it. There are certain taxes that apply to structured settlement payments – income taxes, for example. And some structured payments may be able to be transferred to another individual in the event of death or disability. Again, much of this depends on the original agreement that accompanies the settlement.