Wednesday, April 16, 2008

“The Beginning” How the Industry Began

Filed under: Structured Settlement — Structured Settlements Pro @ 6:55 am

Many years ago it became obvious to attorneys and others involved in serious tort litigation that some plaintiffs would be better off with a settlement where the payments would be made over time rather than all in a lump sum (a “structured settlement”). At that time the concern was primarily flowing from cases where the plaintiff needed to pay medical bills over their expected life. However, there were uncertainties under the IRS code on how to accomplish this without adverse tax consequences, and while creative tax attorneys felt that they had a workable solution, everyone involved realized that a clarification to the tax code would be preferable. In the mid-1980s the tax code was amended to expressly permit structured settlements of personal injury cases where the payments over time would remain tax free.

If an injured party chose a structured settlement the defendant or their insurance company, though a special purpose entity, would purchase an annuity that would fund the structured payments. The annuity is the source of the future payments dispersed at predetermined intervals for the length of the settlement agreement.

Structured settlements appear to be an acceptable financial option for the majority of people that select them. Nearly all structured settlements stay intact through the full intended term of the settlement. However, on occasion a settlement recipient my have a change in their life circumstances that requires them to have a larger sum of cash.

For this reason, states began passing legislation allow for a settlement recipient to convert their future payments into cash. The first state to pass the legislation was Illinois in 1998. Today 46 states have “transfer statutes” that allow settlement recipients in need to convert their future payments to into a lump sum.

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