Structured Settlement Pros and Cons

It’s not uncommon for the winning party of a lawsuit to be given the option of accepting a lump sum payment or structured settlement. Lump sum payments – as the name suggests – is a single payment, whereas a structured settlement is an agreement to receive partial payments over time. In this post, we’re going to reveal some of the pros and cons of structured settlements.

Structured Settlement Pros

Arguably, one of the greatest benefits of structured settlements is the tax benefits they offer. Taxes are either significantly reduced or even eliminated with the acceptance of a structured settlement, allowing the recipient to keep more of his or her money (depending on the circumstance). With a lump sum payment, the recipient must pay income taxes on the money he or she receives, which can be as much as 30%.

Structured settlements typically promote better money management since the recipient receives money in small payments instead of all at once. While this isn’t true for all cases, many recipients of lump sum payments end up spending it all within a short period of time. The recipient might buy a new car, pay off his or her home, or even give some of it away to family members. And before they realize it, the money is gone and they have nothing to show for it. This scenario is easily adverted, however, by opting to receive a structured settlement.

With structured settlements, the recipient may receive more money than if he or she accepted a lump sum payment. Back in the early 1980s, for instance, Christina Grillo sustained injuries during her birth at a Texas hospital. The hospital offered Grillo’s family a $1.2 million lump sum payment to settle the litigation or a structured settlement that would have reportedly paid out $100 million over time. Heeding the advice of the court-appointed attorney, the Grillo family accepted the significantly smaller lump sum payment, which was entirely spent within just a few years time.

“Like most lump sum settlements, Christina Grillo’s cash settlement was completely gone within a few short years, and the family (and the taxpayers) was left to pay tens of millions of dollars in treatment for many years,” wrote Christopher R. Gullen of the State Bar of Michigan. This is just one of numerous occasions in which a structured settlement would have paid out significantly more money than the lump sum.

While the exact payment structure varies depending on the agreement between the two parties, most structured settlements invest the premium amount into an annuity, which is then used to make payments over a specified period of time. A typical structured settlement annuity may yield a 5% or higher rate of return, which is pretty generous compared to other investment vehicles.

Structured Settlement Cons

Accepting a structured settlement can make it more difficult to pay off debt. According to CreditCards.com, the average U.S. household with at least one open credit card has approximately $15,950 in credit card debt – a number that does not reflect student loans, car loans, mortgages, or other types of debt. What’s even more alarming is that credit card interest rates tend to run in the range of 15-20%. Paying off a credit card can take years due to these ever-increasing interest rates paired with late fees. With a lump sum payment, however,individuals and families can pay off some, if not all, of their debt immediately. This is in stark contrast to structured settlements, which spread the payments out over a specified period of time.

If you’re financially savvy and know how to invest, you may earn more money by accepting a lump sum payment. This isn’t to say that interest rates on structured settlements are low, but in some cases you can achieve a higher return by accepting a lump sum payment and investing it yourself. Some people may prefer to invest the money themselves instead of opting for the annuity’s return. But if you’re unfamiliar with the mechanics of investing, a structured settlement would probably offer the highest rate of return.

Another potential drawback of structured settlements is the simple fact that you have to wait a long time to receive it all – time that you may not have. The elderly and people who are severely ill may not have the luxury of waiting 10+ years to receive their money; therefore, a lump sum payment would likely prove to be the wisest choice in this scenario.

Notary Services For Structured Settlements

Whether you’re an attorney orchestrating a structured settlement, or someone who’s planning to receive structured settlement, you’ll need to find a public notary who’s commissioned to notarize in your state. Structured settlements typically require notarization when they are being finalized, but when you’re busy preparing and signing all of the necessary documents, it’s hard to make time to visit a notary’s office.

Superior Notary Services has a network of more than 34,000 commissioned notary publics who will come to you, at a date and time of your choosing. This means you don’t have to find and a visit a notary’s office to have your structured settlement documents notarized. Just contact one of the qualified  notaries in the Superior Notary Services network and schedule a date, time and location for the service.