Possible Problems Associated with Using Structured Settlements
A structured settlement sounds great. Instead of getting all of the money you have been awarded in a lawsuit at once, you can set it up so that you receive it in sets over time. You can set up your payments on a weekly, monthly or yearly schedule and have income coming to you over the entire course of your life.
This is why so many people choose to go with structured settlements. However, this form of payment may not be the best option in every case. Here are some of the negative aspects of using structured settlements.
There are lots of ways that using a structured settlement plan to receive your compensation from a lawsuit will benefit you. First off, if you don’t have all of the money in your account at one time you won’t be able to spend all of it. This is especially helpful for people who may have difficulties controlling their spending when a large amount of money is involved. Studies clearly show that people who receive their compensation rewards in annuity payment form tend to spend less than if they receive it in one lump sum. You can also benefit from tax incentives if you choose to go with a structured settlement. However, a structured settlement may not always be the best option for you. This form of payment plan does have a few cons to be aware of. It is important that you carefully consider the benefits and negatives to receiving structured settlements before you make any decisions. It is highly recommended that you speak with a lawyer or tax professional.
You may encounter several problems with your structured settlement. The first problem is that you will not be able to change the terms of the agreement once the deal has been made. This means that if you decide that you want more of your total payment each month, you will still not be able to get it. So if you are getting $1000 per month and you need more to pay off some bills, you will be out of luck. Structured settlements will also have to rely on the future solvency of the paying party. This means that if the paying party becomes insolvent and is unable to pay you in the future, you could end up losing some of your reward. This is very rare, but it is something you should consider.
Another possible problem with using a structured settlement is inflation. Unless you specifically set up a settlement plan that takes inflation into account, you could end up dealing with inflation-related problems. Another problem involves your access to public funds. You could lose your ability to access some public funds if you receive a structured settlement and do not properly invest it. This could mean that you would not be able to receive Medicare or Medicaid programs in the future. This could be avoided by placing some of the money from your structured settlement payments into certain funding vehicles that are qualified by the government. Trusts and custodial accounts are examples of these types of funding vehicles.
Still a Good Choice
In most cases a structured settlement is still a good choice. In general, all of the money you receive from a lawsuit award is non-taxable. However, if you invest that money and earn interest on it, then the interest becomes taxable. If you properly set up your structured settlement you could still earn interest without paying taxes on it.
However you choose to receive your settlement money, it is good idea to make a plan to avoid losing it or spending it all at once. In some cases a structured settlement is the way to go, but this is not true all of the time.