When you accept a settlement for an injury claim, it can come in two forms: a structured settlement or a lump sum. Accepting a structured settlement might be best for your situation, but consult with your injury lawyer when considering one.
A structured settlement pays you the total damages in the case over time instead of all at once like a lump sum does. With a structured settlement, you don’t get everything up front, which can be a bad thing if you have expenses you need covered now. However, a stable, regular income later can be helpful if your injury makes managing your money hard or you need to qualify for certain benefits programs.
For a free case review, call our Arkansas personal injury lawyers at (479) 316-0438.
What is a Structured Settlement?
A structured settlement is an agreement to accept damages over time because of an injury or wrongful death.
Settlement
When you have a court case – usually a personal injury or wrongful death lawsuit – your winnings can come from a jury award if you take your case all the way to trial. However, trials take a long time and are more expensive. Instead, most cases settle before trial.
In a settlement, the plaintiff (victim) agrees to give up any future rights to payment for this injury in exchange for the damages being paid at an amount the parties agree on. A settlement is not valid until you agree to it, but accepting any money can function as a settlement and stop your right to pursue the case further.
When claims are paid through insurance, that is also typically a settlement.
Structure
The typical way a settlement is paid is in one lump sum, meaning that the defendant pays the plaintiff all the money in one go. This can be great if you have outstanding expenses (e.g., medical bills, rent, mortgage payments) that you need covered immediately, and you cannot wait.
However, you can alternatively accept a structured settlement, where the money is paid out over time (usually in monthly payments) until the whole amount is paid.
Why Use a Structured Settlement?
Structured settlements can be helpful in a few different situations. If none of these are relevant to your case, it might be better to take the settlement as a lump sum, but always work with our Arkansas personal injury lawyer when making your decision.
Maintaining Eligibility for Programs
If you are disabled from your injury, you may have benefits that you qualify for. However, these might require you to have income under certain levels, or else you could lose eligibility. This could include
- Social Security Disability (SSI)
- Medicaid
- An Affordable Care Act health insurance policy
If you get a lump sum, it might count as too much income or count as too much money in your account at once, disqualifying you at least temporarily.
Money Management
Especially if your injuries include head or brain injuries or other disabilities, keeping track of your finances might be difficult. Having your settlement money come in a fixed schedule can make money management easier.
Certainty
Structured settlements are contractual obligations; the money will keep coming at the agreed-upon price, and it is guaranteed by financial institutions. If you were to instead take a lump sum and invest it, it is always possible you could lose that money to bad investing.
Having a structured settlement means you know what your income will be in the future from the agreement.
Other Pros and Cons of Structured Settlements
The following are a few other various pros and cons to consider about structured settlements:
Pros
- You can sell a structured settlement later, potentially making a profit.
- Structured settlements can grow tax-free, potentially receiving more than the settlement amount.
- Protects the money from mismanagement or theft.
Cons
- There is less flexibility.
- You can invest a lump sum, potentially making a profit.
- You cannot typically ask for advances or pre-payment unless you sell the whole settlement.
- You may have immediate expenses or past expenses (e.g., back rent) that will not get paid if you get the money slowly over time.
- Medical care needs might not be manageable on a fixed income.
FAQs for Structured Settlements in Arkansas
Do Structured Settlements Pay More Money Over Time?
Sometimes. Depending on the length of the settlement and other factors, it might actually end up being bigger overall than if you accepted the money all at once.
However, most people invest the money they receive in a lump sum (when possible), potentially allowing for even higher growth than the structured settlement would provide.
What is an Annuity vs. a Structured Settlement?
A structured settlement is a settlement from a lawsuit that is paid through an annuity. An annuity is just an investment that gives a monthly payout, and they can be bought and sold as assets. When you accept a structured settlement, the money is paid into the annuity to pay you over time.
Is a Structured Settlement Better for Taxes?
In some cases, there may be damages in the case that are taxable. However, most damages paid because of a bodily injury are tax-free, meaning there would be no effect on your tax liability from a lump sum.
If you are concerned that a lump sum might trigger higher taxes, you can talk to your lawyer about a structured settlement instead.
Can I Get Some Money in a Lump Sum and Some in a Structured Settlement?
The thing about a “structured settlement” is that you can structure it in basically any way the parties/administrator are willing to agree to. If you have payments to catch up on now – such as back mortgage payments and medical bills – but you want a structured settlement going forward, you can see if it is possible to take one large payment now and get the rest over time.
A hybrid or split approach might not be possible with every defendant, insurance company, or administrator.
Call Our Arkansas Personal Injury Attorneys Today
For your free case evaluation, call our Bentonville, AR personal injury lawyers at (479) 316-0438.