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Wednesday, March 26, 2014

What is a Structured Settlement in an Auto Accident Recovery?

As they relate to auto accident and personal injury recoveries, the main differences between a cash settlement and a structured settlement is the tax impact.   

The Tax impact.  Let us say, for example, you have been injured as a result of the negligence of another driver in an auto accident.  Your lawyer gets you $100,000.00 in damages.  If the money is coming from the insurance company for the other driver, you do NOT pay taxes on that sum.   
If you choose to invest that money and get paid out over time, the earnings on that money will be taxable.  
Now, if the award is in the form of a a structured settlement instead of the $100,000 cash, payments will be made to you over a period of time.  Each payment is fully tax free.  
Insurance companies like to pay out structured settlements, but you should discuss with your attorney whether a structured settlement is right for you;  it depends on your circumstances.
The setup.  You are generally talking about being paid out of an Annuity.  However, you do not own the Annuity -- if you did, the tax law would not be in your favor.   The Defendant insurance company will deposit the monies for structure with a life insurance company’s subsidiary called an “assignment company.”  This is who buys the Annuity and pays out the structured settlement. 
Because you don't own it, you don't pay taxes on it.  This can be especially beneficial to plaintiffs with families, with children in college, etc.
A final note:  be careful of the "Get your cash now" ads you hear on infomercials.  They generally involve factoring, not the annuity process.  The best course is decide initially whether you will take the cash up front or setup the structured settlement.
For more information, contact Anthony LoBiondo, a personal injury attorney with 23 years experience. www.LoBiondoLaw.com or anthony@lobiondolaw.com.  (845) 569-7600