Sophisticated investors will find that the advantages of structures can be combined with traditional investments. This unique system attributes to a secured future.
Payments are excluded from Gross Income
Tax-free pursuant to Section 104(a)(2) of the Internal Revenue Code (Title 26 USC) if based on personal physical injury or physical sickness, or to fund future payments for a workers' compensation claim under Section 104(a)(1).
Extremely Low Risk
Payments are backed by the largest and highest rated life insurance companies in the country. The life insurance industry is one of the strongest Sectors of the US economy.
Flexibility in Format
Limited only by our imagination and the amount of the settlement, the payment stream can be made the same each year or increase annually to offset the effects of inflation on purchasing power; plus they can be made on a lifetime bases, assuring that the payee cannot outlive the payments.
Heirs Protected by Guaranteeing Payments
Payments can be guaranteed 5, 10, 15, 20, 30 years or longer to protect heirs and prevent a windfall to the life insurance carrier.
Do not impact Retirement Plans
Payments do not affect Social Security and other entitlement programs, where cash settlements might offset benefits.
Integrity with a Companion Investment Portfolio
Periodic payments provide an ideal source for "dollar cost averaging," a strategy of investing the same amount of money each month or quarter that lowers the per-share cost over time. It is ideal for those who are tolerant of risk involved in investment in stocks.
Highest After-Tax Return with Low Risk
In case one thinks that rates may increase in the future, payments can be returned in intervals (as lump sums) to be reinvested at the prevailing rate, similar to "bond laddering." It is an investment strategy where you purchase bonds that pay back on different dates, i.e., every three years, to reduce the risk that you have locked in an interest rate at an unfavorable time.
Variable Annuity Funding provides Market Rate Growth
For those individuals with a suitable risk tolerance, a structured settlement may be funded with a variable annuity, which may use securities portfolios as the underlying assets. This captures the long-term market performance, and all gains are income tax-free!
Enhanced and Relaxed Money Management
Periodic payments avoid agonizing investment decisions, plus eliminate management fees that can be as much as 8.5% on a one-time basis or up to 3% of assets annually.
Most Efficient Way to Purchase a Home or to Start a Business
Payments are made with tax-free dollars, while maintaining a tax write-off (double-dipping Uncle Sam). This system can provide cash flow to start a business, while protecting the downside of losing settlement proceeds, if the business should fail. (The vast majority of new businesses fail within five years.)
Reduces The Potential of Dissipation of Settlement Proceeds
Structured settlements were authorized by Congress for the reason that 90% of the benefits received are exhausted within 5 years. Providing a significant tax benefit as an incentive for injury victims, to elect periodic payments to preserve the money recovered in damages, so as to saving the victims from becoming a ward of society after the money was gone, was the soul motive of setting up this system.
Taxable Recoveries may also be Structured
Structured payment system may also be applied to taxable recoveries from litigation claims such as age discrimination (except lost wages), breach of contract, construction defects, disability discrimination (except lost wages), environmental litigation, errors and omissions liability claims, false arrest or imprisonment, fraud, harassment, intentional tort damages, non-physical personal injury, wrongful termination (except lost wages), etc. This may also attribute to several other advantages like deferring income taxes on amounts not paid in the current year, allowing that money to grow for the claimant's benefit, spreading income over several years to escape the higher tax brackets, reducing or eliminating the alternative minimum tax (AMT) in those jurisdictions that consider attorney fees as taxable income to the claimant and disallow below-the-line deductions.
Attorney Fees may also be Structured
Attorneys may structure their fees, creating a private retirement plan for themselves, with no requirement to include employees or to make future contributions. This is a deferred compensation plan, which is a well-settled concept in tax law. Attorney fee structures specifically have been approved by the US Tax Court. An attorney fee does not need to be from a personal physical injury or physical sickness case to be structured. Any fee receivable may be structured, whether the client's recovery was taxable or nontaxable, or whether the client recovered any damages at all.