Structured settlement agreements have become increasingly popular over the years. This is due to the fact that structured settlements often benefit both the plaintiff and defendant in legal cases. However, there are instances where you may want to cash out your structured settlements at a later date. In our article, we’re going to explain what a structured settlement is and how to cash one out. We will also cover two important factors to consider first before making a final decision on obtaining cash for structured settlements.
What Is a Structured Settlement?
The first thing you should understand before attempting to get cash for your structured settlements is what exactly a structured settlement is. In short, a structured settlement is a legally binding agreement between you and another party. In this agreement, the payer agrees to cover a specific amount over a predefined period for the life of the settlement.
Benefits of Structured Settlements
For most people, they will receive money on a monthly basis. However, the pay frequency can vary slightly based on the specifics of your settlement agreement. The most common instances where structured settlements are used include financial and insurance-related agreements. In many instances, there are a wide variety of benefits to using a structured settlement for both the payer and the recipient.
One of the biggest advantages of a structured settlement is that it often allows both parties to avoid a long and complicated court process. As long as both parties agree, settlements allow legal matters to be closed much more quickly and efficiently. In many cases, there are also usually quite a few tax advantages when using a structured settlement as well.
Difference between Annuities and Structured Settlements
The last thing we will cover in this section of our cash for structured settlements article is the key differences between an annuity and a structured settlement. With annuities, payments are made on a yearly basis only. With structured settlements, the payment frequency can vary substantially based on the agreement between the two parties.
An annuity is also a type of investment that is purchased to help ensure a specific payment structure each year. In many cases, companies may choose to use annuities to help make payments for structured settlement agreements. With settlements, these are payments that are paid out for a variety of legal reasons relating to liability and other issues.
The Pros of Structured Settlements
- Often, personal injury settlements are tax-free.
- Structured settlements provide a great way to stabilize your earnings long-term.
- Can be combined with a lump-sum payment to cover initial medical needs.
- The unique needs of plaintiffs can often be included in the structured settlement terms.
The Cons of Structured Settlements
- Certain additional damage award types may still be subject to tax withholding.
- Set payment amounts can lag behind cost of living increases.
- Since structured settlements are affordable for companies, it’s easy to underestimate the worth of your settlement.
- Requires quite a bit of planning to ensure your loved ones continue receiving payments.
How to Get Cash for Your Structured Settlements
If you already have a structured settlement and are interested in getting a lump-sum payment, the process is fairly straightforward. You start by searching for a law firm or investment group that specializes in structured settlement payment purchases.
These types of companies will be licensed. They should be able to answer any questions you may have about the process. The next step involves getting a quote that should detail all of the fees the firm is charging as well as your total lump-sum payment amount. If it meets your specifications, you’re ready to proceed to the next step.
At this point, you should have completed all of the necessary paperwork and be ready to present the agreement to a judge. As long as there are no issues with the documents, your agreement will be processed, and you should receive a check for your lump-sum payment amount from your provider.
Consider 2 Factors before Opting for Cash for Your Structured Settlements
1) The Importance of Taxes
As mentioned earlier, structured settlements often have many tax advantages over traditional lump-sum payment methods. This is why the importance of evaluating potential tax implications is our number one factor to consider before deciding to opt for cash for your structured settlements.
In most instances, you should not incur any additional taxes when cashing out your structured settlement agreement. This is due to the fact that most types of wrongful death and liability damage payments are considered to be tax-free in the United States tax code.
However, there are rare instances where certain portions of your payment amount may be subject to either state or federal tax rates. A prime example is structured settlements that occur from other sources not relating to personal injury and certain liability claims. When in doubt, it’s always best to consult with a licensed tax professional beforehand to make sure you won’t get hit with a big tax bill.
2) Consider The Losses
The next factor that we will be covering in our cash for structured settlements article is the impact of potential losses in value. No matter what, opting to sell your structured settlement will result in a total loss of value.
This is due to the fact that companies that purchase the rights to your settlement agreement seek to make a profit by giving you cash now. In the case of large settlement amounts, the loss can be thousands and thousands of dollars.
However, there are situations where this approach may benefit you greatly. One of the most common reasons people opt for lump-sum payments is for debt consolidation. By reducing your high-interest debt load, you can improve your credit standing and greatly reduce your monthly expenditures.
Another common reason many people decide to sell their structured settlement is for large purchases like a new home. In either case, just remember to carefully consider the total loss in value that will occur from selling your structured settlements.
In certain situations, cashing out your structured settlement makes the most sense. It can give you an infusion of cash to pay down debts as well as finance large purchases like a new home. Just remember to pick a reputable company to handle your payout request and to carefully review all the documents and disclosures.
In addition, keep the 2 factors we mentioned in mind. This way, you will be one step closer to ensuring you make an informed decision.