Structured Settlement

[JustGroovewithme]

In Maryland, If I choose a structured settlement, may I choose the amount of the initial payment?

I understand with the annuity as the fund grows your payment grows as well depending if your benefit is large enough for this process.


If the settlement is lump sum I stand to loose in the long run correct?

[BvIA]

Sections 104(a)(1) & (2) of the Internal Revenue Code (IRC) provide that proceeds of a worker’s compensation (WC) settlement or settlement of a third-party liability (TPL) claim involving physical injury or sickness (except for punitive damages) are not taxable. However, income earned by plaintiffs on lump sum settlements of such claims is taxable. Settling parties as far back as the 1970's reasoned that if a settlement could be paid out in periodic payments over time, the tax on settlement income could be deferred.http://www.jjcelderlaw.com/AnnuitiesMSABull.htm

The up front cost of an annuity to fund the Structured Settlement is set. You are provided with a tax free stream of income for life. (Actually it's life contingent'.) The payments are guaranteed for life, but certain to 10 or 15 years depending on how it's set up. If you die before the 10/15 years, there is an estate value, past that time, none.

You can predetermine the payment structure, cash up front, periodic lump sum payments...ie. at 3 yrs for a new wheelchair, or at 5 yr for a van conversion, or at 15 yrs for college tuition... any money you schedule for lump sum payments will reduce the monthly payments.

I understand with the annuity as the fund grows your payment grows ...

There is no 'growth' in an annuity. All the numbers are preset, and you cannot make ANY changes once the plan is set in place. Mutual funds grow, not annuities.

If the settlement is lump sum I stand to loose in the long run correct?

Depends. If you let the indemnity pay out over time... bi-weekly as a rule... you get the full value...IF you live long enough.
When you die, the claim dies.

In a lump sum, if the law permits, you take the payment in ''todays dollars'', a reduction based on a % discount/annum. You could leave the money in an interest bearing account and watch it grow just as the carrier can.

With an annuity there is possiblity of life estate, and if you outlive and guarantee, you stand to make money with an annutiy. Of course the longer you live, the less value in the fund.

[BvIA]

Do you think the 30K will generate 30K in interest income...TAX FREE in the next ten years...?

What should I do?

You take a good look at your financial situation... and if the 500/mo is more attractive...again, TAX FREE 30K over ten years... you take the settlement.
(the lump sum 30K is tax free... but you can't earn 30K tax free over the ten years...and the interest income IS taxable. Besides... I'd take the bet the 30K isn't going to last 10 years if you take the lump sum now, cuz you aren't going to leave it in the bank to accrue the interest) Over 10 years you DOUBLE the value with a structured arrangement. $500/mo X's 12 X's 10yrs = $60K