IPA structured settlement can be of great help in case a person has a settlement with someone or some organization regarding any kind of compensatory claims. This is a kind of annuity which helps the pay-out process of compensatory claims with certain advantages given on the tax front.
Periodic payments which are tax free in nature can be done to the owners of the structured settlements. These structured settlements are quite common these days and a lot of people pay back the compensation amounts in installments under the structured settlements. Recipients get complete tax concessions on the pay-out installments.
Structured Settlements – History
In earlier days, the compensations were given out in lump sum amounts. The receiver of the compensation benefited a lot out of this as he was able to meet all his expenses with the money. However this lump sum pay out of the compensation tended to hurt the person paying the compensation. He had to pay a huge sum of money at a very short notice. This is very inconvenient for them.
The Periodic Payment Settlement Act encouraged the people to use the facilities of structured settlements in cases of physical injury. The people who opted for the structured settlements were given a lot of tax benefits due to the amendment of the federal tax code. The payments of the compensation were advised to be paid in installments to the recipients. Thus the structured settlements revolutionized the world of compensatory claims and payments in a very positive way.
Cases eligible for Structured Settlements
The settlements which pertain to the cases related to the personal injury of individuals, compensation claims from the workers and death compensation came to be eligible for the structured settlements. In cases of personal injury, the plaintiff who files the complaint wins the compensation after having won the case. The court gives the verdict in favor of the plaintiff if his complaint is found to be true.
The compensation takes care of the medical expenses and miscellaneous expenses of the plaintiff. With the help of structured settlements, the plaintiff and the payer of the compensation can come to a settlement of annual or monthly payments of the compensation amount. In the case of a particular worker getting injured while working, the employer needs to compensate the worker for the period for which he is not able to work.
This helps the individual to run his family, in case he is the lone earning member of the family. The wrongful death cases of an individual end up in a company or another individual in having to pay a huge compensation to the family of the dead. This compensation is very important for the dead person’s family as a source of income closes down for them.
Advantages and Disadvantages of Structured Settlements
Like all other things, even Structured Settlements have their share of advantages and disadvantages as well. You might want to consider going through the advantages once before initiating a court request for selling structured settlements. The tax benefits are one of the most important advantages of the system of structured settlements. No taxes are levied on the interest earned from the compensations or the capital gains that are earned.
This ensures added income for the recipient of the compensations. The schedule of payments to be made in order to pay out the compensation can be discussed between the plaintiff and the person paying. The flexible payment schedule is a marked advantage of the structured settlements.
An insurance company guarantees the payments of the compensations. Thus the financial transactions do not depend on the rise and fall of the financial markets of the world. Due to the structured settlements the beneficiaries of a recipient will be continuing to receive the tax free payments of the compensation.
The disadvantages of the structured settlements, however, must also be considered. Structured settlements should only be sold to credible buyers. Here are a few tips that will serve you well. These issues need to be kept in mind before selling the structured settlements. The terms and conditions of the structured settlements are not flexible at all. Once the clauses are finalized there is no way to alter them.
This lack of flexibility is a big problem for the people who opt for structured settlements. You’ll only be able to initiate a court process if your structured settlement contract has the clause of resale added.
The compensations funds cannot be accessed by the receiver immediately after the payment. They cannot invest that amount immediately afterwards on high return schemes. There are surrender charges along with IRS penalties in case the funds are withdrawn before the plaintiff’s is 59.5 years old. This is another huge disadvantage for the receivers of the compensation. In case the plaintiff buys an annuity immediately then he loses the option of receiving a lump sum pay out.
Settlements related to minors
In earlier days, in the settlements which involved paying compensations to the guardians of a minor for lawsuits involving the minors, a lot of discrepancies were seen. The guardians had the right to spend the compensatory fund wherever they wanted. This resulted in misuse of valuable funds.
Thus the changes have been made to the rules regarding the structured settlements. The guardians of the minors are no longer allowed to spend the money wherever they wanted. The money has to be kept separately and safely for the future life of the minors.
This money shall take care of the basic necessities of life for the minors. The living, clothing and food costs of the minors would be taken care of. The minors would also receive the best medical facilities.