If you are a personal injury victim, here are three good reasons why you purchase structured settlements instead of getting a lump sum settlement. Specifically, when you buy structured annuities, you avail yourself to considerable tax advantages; protect yourself from having funds dissipated; and, if you are disabled, the periodic payments, combined with other estate planning options, can increase your likelihood of Medicaid eligibility.
Take a look at this article to determine whether or not you should purchase structured settlement payments instead of a lump sum settlement.
Purchase Settlement Annuities For Their Tax Advantages
Many companies that sell these types of annuities tout the advantages of tax avoidance.
While you should not base your decision to buy structured settlements solely on tax consequences, it is certainly a consideration. Specifically, personal injury payments are exempt from federal income tax under federal law. However, settlements for lost wages are subject to taxation. When you settle your claim, you may avail yourself of other tax advantages under the Federal Structured Settlement Protection Act.
With appropriate tax planning, such a settlement may provide favorable tax treatment, and may in some cases be tax exempt.
Buy Annuities To Prevent Waste Of Funds
Companies that sell annuities correctly advise that they are intended to compensate the plaintiff for injuries and provide for future lost wages and medical care. But, oftentimes, structuring a settlement can protect minors, incompetent persons and financially unsophisticated plaintiffs.
# Unsophisticated Plaintiffs. Face it, some people just aren't good at handling their finances. In my experience, all sorts of "shady" friends and relatives come "out of the woodwork" encouraging the plaintiff to "share the wealth." Within a sort period of time, the plaintiff is penniless. Encouraging the plaintiff to purchase an annuity settlement keeps the money from being squandered; and, more importantly, gives the plaintiff an "excuse" to refuse unscrupulous friends and relatives' requests for money.
# Incompetents And Minor Children. The legal representatives or guardians of minors should consider buying annuities in lieu of cash. Many of the same benefits to unsophisticated plaintiffs also apply to minors as well. Sometimes, the parents of minor personal injury plaintiffs are unsophisticated and could waste the funds instead of saving them for the child's benefit. Instead, a guardian who decides to purchase structured annuities, can set up such annuities so that the child receives periodic lump sum payments for college expenses, the purchase of a house and possibly a business.
Purchase Settlement Annuities To Pay For Future Medical Care
Most personal injury plaintiffs look to buy structured settlements to provide for future medical care. Structured settlement calculators can be used to predict cash needs to prepare for future medical needs.
Notwithstanding the benefits of periodic payments, in some cases, severely injured payment would obtain better benefits from a special needs trust. This is because of the possibility that the plaintiff could be eligible for Medicaid because of the severity of his or her injuries.
A special needs trust can be structured so that the plaintiff can receive the benefits of a settlement without being disqualified from receiving Medicaid. Consult with an estate planning attorney or disability needs planner for more information on this particular situation.
Substantial Benefits To Plaintiffs When They Buy Structured Annuities
As a plaintiff, now that you know a bit more about the benefits obtained when you purchase settlement payments, you can decide what is right for you.
Specifically, you need to consider the potential tax advantages when you buy structured settlements. Many companies that sell structured annuities will advise that their annuities will protect the plaintiffs against waste, fraud and mismanagement.
Companies can use structured settlement calculators and actuaries to develop a plan to meet the needs of a minor child. Finally, although the benefits of buying settlement annuities are plentiful, there are times where a special needs trust might be a better alternative to a plan to purchase structured settlement payments.
In the end, you need to consult with your attorney, tax advisor and financial planners to determine whether the decision to purchase structured settlements is one that you should consider.