Structured Settlements

In a structured settlement, part or all of the recovery is used to buy an arrangement, commonly an annuity, that pays a set amount on a set schedule. Payments might be monthly, yearly or tied to future needs such as a child's education. The schedule is usually fixed when the settlement is finalized. Because the terms are hard to change later, the plan should be built around realistic needs: household expenses, future medical costs, and support for dependents. A financial professional who understands these arrangements can help model different options before a decision is made.

A steady schedule can provide reliable income for a surviving spouse or for children as they grow up. It can reduce the risk of a large sum being spent too quickly or lost to poor investments. In some personal injury situations, structured payments may also have tax advantages, though tax rules are complex and should be confirmed with a qualified tax advisor. For families who worry about managing a large amount of money during a stressful time, the predictability of a structure can bring peace of mind.

Once a structure is set, it is generally difficult to access money early if an unexpected need arises. Selling future payments later is possible in some cases, but it often comes at a steep discount and may require court approval. The long-term payments also depend on the financial strength of the company providing them. For a patient with serious medical needs now, immediate access to money may matter more than long-term security. Some families choose a mix, taking part of the recovery as a lump sum and structuring the rest.

1. 1

   List expected expenses for the next several years before deciding how money should be paid.

2. 2

   Ask a financial or tax professional to compare a lump sum with a structured schedule.

3. 3

   Ask who would issue the structured payments and how their financial strength is rated.

4. 4

   Consider whether a partial structure, combined with some upfront money, fits your family best.