What is a Structured Settlement?
Structured Settlement
A structured settlement is a financial or insurance arrangement, including
periodic payments, that a claimant accepts to resolve a personal injury tort
claim or to compromise a statutory periodic payment obligation. Structured
settlements were first utilized in Canada and the United States during the 1970s
as an alternative to lump sum settlements. Structured settlements are now part
of the statutory tort law of several common law countries including: Australia,
Canada, England and the United States. Although some uniformity exists, each of
these countries has its own definitions, rules and standards for structured
settlement. Structured settlements may include income tax and spendthrift
requirements as well as benefits. Structured settlement payments are sometimes
called “periodic payments”. A structured settlement incorporated into a trial
judgment is called a “periodic payment judgment”.
Structured Settlements in the United States
The United States has enacted structured settlement laws and regulations at both
the federal and state levels. Federal structured settlement laws include
sections of the Federal Internal Revenue Code. State structured settlement laws
include structured settlement protection statutes and periodic payment of
judgment statutes. Medicaid and Medicare laws and regulations impact structured
settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured
settlement payments may be incorporated into “Medicare Set Aside Arrangements”
and “Special Needs Trusts”.
Definitions
The United States defines “structured settlement” for Federal income taxation
purposes in Internal Revenue Code Section 5891 (c) (1) as an "arrangement" that
meets the following requirements:
A structured settlement must be established by:
A suit or agreement for periodic payment of damages excludable from gross income
under Internal Revenue Code Section 104(a)(2); or
An agreement for the periodic payment of compensation under any workers’
compensation law excludable under Internal Revenue Code Section 104(a)(1); and
The periodic payments must be of the character described in subparagraphs (A)
and (B) of Internal Revenue Code Section 130(c)(2) and must be payable by a
person who:
Is a party to the suit or agreement or to a workers compensation claims; or
By a person who has assumed the liability for such periodic payments under a
Qualified Assignment in accordance with Internal Revenue Code Section 130. The source of this article is
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