Structured Annuity Settlements – Its Tax Benefits And Other Advantages

A structured settlement is a payment arrangement that a claimant accepts while resolving a personal injury claim. Instead of deciding to take a lump sum settlement amount, the claimant may decide periodic payments over time. Such settlements were introduced in 1970 and now they’ve become part of statutory tort law in the United States, Canada and Australia. Under the structured settlement agreement, the insurance company agrees to pay an individual or the claimant a predetermined amount of cash for a predetermined period of time if the individual meets with an accident. The documents usually generated in a structured settlement include an agreement, an annuity application, a qualified assignment, a court order if a claim is made by a minor and an annuity policy.

Payments for a structured settlement annuity can be made for the entire duration of the life of the claimant. The amount that is to be paid can comprise of equal instalments, of varying amounts and lump sums. The payments from a structured settlement annuity are free from income tax and are guaranteed by contract. In short, a structured settlement can help you stay secured financially throughout your life.

A close look at the tax benefits of structured settlements

One of the most well-known benefits of receiving structured settlements is the tax benefits. Almost all structured settlement payments are considered as tax-free. So, when you receive the payments, they’re not considered as a part of income and hence they’re not taxable. Likewise, if you decide to sell the entire structured settlement or a portion of it, the amount that you receive in exchange for those payments is also tax-free. It is vital to know that the payments are transferred in relation with the Federal and State Structured Settlement Transfer Act in order to qualify for the tax exemption. Due to this, it is vital that you work with a trusted advisor and well-rated structured settlement purchasing company so that make sure that your transfer is completed legally. Or else, you could be facing up to a 45% tax on the amount which you receive.

What are annuities?

An annuity is a product that is sold and managed by an insurance company. Annuities can be either deferred or immediate. Money that remains in the account which is sheltered from taxes until the money is withdrawn. In terms of a large settlement, you may be given the option to annuitize or there may be a part of the settlement requirements. When this takes place, the money is placed in an annuity as the annuitant and a payment schedule is created. This provides an income for your entire lifetime, while another form provides income for a specified number of years.

Hence, if you’re wondering about the ways in which structured settlement can help you, you can take the above mentioned information into account. However, if you’re looking for ways to sell off your structured settlements, you should locate a good seller who has your best interests in mind.

Jimmy Simond is a founder of Personalfinancetricks.com, he share his immense knowledge of finance in this blog.