Why so much confusion about structured settlement?
Structured settlements are becoming highly popular these days, partly due to the benefits they provide and partly due to the flexibility they offer to the holder. According to Einstein Structured Settlement, Structured settlements are regarded much well as compared to other types of investment in the sense that they are oriented towards the needs of the owner. Despite all the advantages many people have doubts about this financial instrument when it comes to make an investment. They have many questions regarding the investment and handling of structured settlement that they want to answer before making any decision.
The questions are countless but a few, that are continuously haunting the minds of those who want to invest in structured settlement, are answered below:
What is the effect of inflation on structured settlement?
The biggest worry for the investors these days is inflation, which is chomping off their plans to save for their future. The investors need to mark up their investment for their future with the expected rise in inflation. Without a proper calculation their investment will not pay them as per their expectations. Annuity is no exception for this truth. Annuity sure pays a comfortable annual income but it does not promise to do so after a time of 10 years, as the purchasing power is expected to change with the rise in inflation. The value of the annual payment of structured settlement can drastically reduce due to the effect of inflation. In this case most of the people decide to sell this financial instrument to a structured settlement company in exchange of cash that they can invest in some other instruments to fight off inflation.
Is the income from structured settlement taxable?
Legally a person does not have to pay tax on the any amount of money received as the compensation of physical damage caused to him/her. This money is not treated as the source of actual income and thus is exempt from tax. In legal terms this money is for the compensation for recovery from that particular damage. In fact, the tax free nature of the structured settlement amounts is among the most highly regarded benefits of this financial scheme. But this income from the structured settlement is tax free only as long as the payee is alive. In case of the death of the payee, the income becomes taxable as per the law of Inheritance. This is because the source of income is now transferred to the descendent of the actual payee who did not suffer any damage. Thus this money coming as a source of income becomes taxable.
In some cases this financial instrument is tax deferred, which means the taxes on the income through structured settlement are delayed for a specific period of time only. After that period of time the income becomes taxable. If the payee decides to make a withdrawal, in this case the amount withdrawn is taxable.
What if the holder wants to sell only a portion of structured settlement?
It can be seen very often that the holders of the structured settlement sell only a portion of the structured settlement to fulfill their immediate financial needs. It is also possible for the holder of the structured settlement to sell this instrument in portions on different occasions throughout their lifetime as per their need and convenience. There are many individuals and companies that are ready to purchase these portions of structured settlement in exchange of a good amount of cash. This option gives the holder a flexibility of handling it and gets the holders higher amount of liquidity on their holdings.
What are the things to be considered before selling structured settlement?
While making the decision to sell the structured settlement, it is necessary for the holder to consider some important factors which are sure to affect their deal.
- The very first thing that the seller of the structured settlement needs to consider is the legal restrictions involved in the deal.
- The holder also needs to look for the contractual restrictions, which sometimes do not allow the holder to sell the structured settlement.
- When a structured settlement is sold for cash, the amount of money received becomes taxable and the plaintiff is exposed to an immediate tax liability.
- The seller of the structured settlement should be aware of the low offers that are often made by the buyers of the instruments.
Should one consult a lawyer in the deal related to structured settlement?
It is very wise to take help from a lawyer before making any deal related to structured settlement. He will ensure that the rights of the holder are protected against any type of fraud or he/she is not held responsible for anything outside his/her control. The lawyer will help the plaintiff with the purchase or selling agreement.
I don’t know too much about structured settlements, thanks for the post. I will definitely have to do some digging and increase my knowledge. Thanks for the introduction.
I think structured settlements should be a last resort if the cash is only really needed for an emergency. You actually get less money now than if you just wait it out.
Kathryn Dilligard says
These definitely answer my questions, thanks!