Structured settlements are often used in personal injury cases. They’re an alternative to a lump sum payment to ensure that the victim has funds for his/her medical care for as long as that care is needed – and for many other reasons. Generally, structured settlements are required for minors. For adults, they’re an option to consider.
There are numerous factors that can help you decide if a structured settlement is a good option. Depending on the facts of your case, you may be better off with one. But we will say that you should never accept a settlement of any kind, structured or not, without talking to an injury lawyer first.
How does a structured settlement work?
The purpose of a negotiated settlement or a jury verdict is to compensate accident victims for all their medical expenses, lost income, pain and suffering, property damage, and other damages such as scarring and disfigurement. A structured settlement is an alternative to a lump sum payment.
In a structured settlement, the insurance proceeds are normally held by the defendant or the defendant’s insurance company – who then purchases an annuity that pays the regular payments. The defendants may also place the funds with a company that specializes in structured settlements.
The plaintiff receives regular (usually monthly) payments until the proceeds are paid in full. If there are any funds left over after a certain time period has expired, after a child victim turns 18, or the accident victim dies, then the balance of the proceeds is paid. The balance is paid to either the child who is now an adult, a designated person identified in the structured settlement agreement at a certain date or event (such as the death of the victim), or through the victim’s estate.
Both the accident victim and the defendant (or the defendant’s insurance company) must agree to the structured settlement which is set forth in writing. Structured settlements for minors or anyone who is deemed mentally incompetent require court approval.
Structured settlements can be used for any type of personal injury claim. Structured settlements may be more advisable for certain types of injuries such as traumatic brain injuries or any injury that requires long-term medical care, than for other injuries such as broken bones which normally heal within months or a year or two after an accident. As part of the structured settlement, the plaintiff releases the defendant from liability and the defendant funds the settlement.
What are the different types of structured settlement payout options?
There are different types of payout options that our personal injury lawyers in Vancouver or Battle Ground, WA can negotiate with the defendant(s):
- A large initial sum is paid followed by smaller regular payments. The large payment may pay for medical bills and lost income that has already accumulated – and for property damage and pain and suffering to date. The periodic payments can then be used for continuing medical bills, continuing lost income, and pain and suffering.
- Some structured settlements may begin with smaller payments and increase with time. Payments could be delayed such as when a child turns 18 or for other reasons. Structured settlements can also be negotiated to pay a periodic amount but also pay extra for emergency expenses such as if an accident victim needs surgery.
The structured settlement should take into account the type of injury the victim has and whether the victim’s medical condition is expected to improve or worsen.
Some structured settlements can end when a child victim turns 18, for a certain term of years (such as 10 years), or when the beneficiary dies.
Tax considerations for structured settlements
Generally, personal injury awards including lump sum payments and structured settlements are not taxable. Some exceptions may apply. If a plaintiff accepts a lump sum settlement and earns interest on that sum, the interest is normally taxable. However, if the settlement is placed in an annuity through a structured settlement, then generally the principal and interest are not taxable.
Structured settlements and minors
Washington law requires that all settlements of accident claims involving an unemancipated minor or a person who is “disabled” or “incapacitated” as defined under RCW 11.88 must be approved by the court. In addition to a structured settlement, a trust may be used to ensure the child victim’s needs are protected. A guardian ad litem may be appointed for the child to ensure the settlement or award is properly handled.
What are the pros and cons of a structured settlement of a personal injury?
The advantages of a structured settlement are:
- Structured settlement payments are generally not taxable.
- Structured settlements may or may not affect means-tested eligibility claims such as Social Security Disability, Medicaid, and other governmental aid. (We’ll explain if a special needs trust is required.)
- The payment schedule and terms of payment are generally flexible.
- The victim should have the money available for medical care and other essential needs without the danger of spending the money or investing the money unwisely.
- Structured settlements can help provide for others if the accident victim dies before the funds are used – either through a death benefit or continued annuity payments.
- Having the funds in a structured settlement means creditors and family members looking for money cannot access the insurance proceeds.
The disadvantages of a structured settlement are:
- The terms of the structured settlement agreement are binding. The accident victim can’t ask for any funds to be paid earlier or in larger amounts unless the structured settlement agreement authorizes additional funds. If the victim receives a lump sum settlement, the victim can access the funds whenever he/she wants.
- There may be administrative costs to manage the annuity and make the timely payouts.
A quick reminder about predatory lending companies that target structured settlements
There’s one more thing we want to address, and it has to do with pre-settlement funding – AKA “lawsuit loans.” There are companies out there that will prey on vulnerable people. (You’ve probably got the jingle in your head right now, don’t you?) Pre-settlement funding is perfectly legal, but that doesn’t mean it’s not exploitative or morally wrong. These companies are predators, and they are out to take your money – money you will need to pay for your long-term care. We urge you to avoid them at all costs.
At Philbrook Law Office, we have a strong record of negotiating insurance settlements and also obtaining impressive jury awards. Our injury lawyers in Vancouver and Battle Ground, WA will explain all your payment options when you settle a case or there is a jury verdict. We’ll also review your healthcare coverage so you have a good idea of what bills will be paid through your insurance and what bills you may need to pay on your own – based on your injuries and other factors.
To discuss your personal injury or wrongful death claim at one of our offices in Vancouver or Battle Ground, WA, please call us or complete our contact form to schedule a free consultation. Our trial attorneys represent personal injury clients on a contingency fee basis.
Founding Attorney Matthew Philbrook attended Clark College, Washington State University, and Gonzaga University School of Law. He is a member of the Washington State and Oregon State Bar Associations and started Philbrook Law Office in 2005. He specializes in Personal Injury, DUI and Criminal Defense cases. Learn more about Mr. Philbrook.