If you’ve received a structured settlement as part of a personal injury or accident case, you may not find the ongoing periodic payments convenient for your lifestyle. There is a range of reasons you might prefer a lump sum pay out of all or a designated amount of the structured settlement amount. You might face unexpected expenses, the need to make home repairs or want to invest in education. It may be possible to sell all or part of your structured settlement, but there are a few factors to consider before you make the decision.
Advantages to a Lump Sum Sale of Your Structured Settlement:
There are a few benefits to selling all or part of your structured settlement, including:
- Risk Avoidance: When you have a structured settlement, you’re receiving payments over a period of time – usually several years. During this time, the company responsible for making payments has control over the funds. If the organization undergoes bankruptcy proceedings, you may lose all or some of the money due to you.
- Economic Factors: Most structured settlements specify a certain amount that you’ll be paid according to a payment schedule; that amount won’t change with fluctuations in inflation or cost of living. At some point in the future, your structured settlement may not cover the expenses for which it was intended.
- Control: When you obtain a lump sum for the remaining amount due under your structured settlement, you alone have control over how you spend the funds.
Drawbacks to Selling Your Structured Settlement:
The arrangement is intended to provide a continuous stream of income over a period of time, so selling a structured settlement isn’t always the best choice.
- Tax Implications: A structured settlement usually offers considerable tax advantages, as the payments are tax-free as long as the beneficiary doesn’t control the funds. When you sell, the lump sum you receive is considered income and will be taxed.
- Professional Management: Financial experts are usually in control of the funds held as structured settlements, so they’re properly managed with respect to market conditions. Unless you have a background in financial planning, you risk losing money on investments.
The Process of Selling Your Settlement:
Structured settlements are very complicated contracts, so there are many documents involved when you decide to sell all or part of your interest in the funds. There are affidavits, releases and other paperwork that must be signed. Because a court usually needs to approve the sale of a structured settlement, these documents must also be notarized. The seller is changing the terms of the agreement and accepting the entire amount owed, so going through the notarization process offer sufficient assurance that the court needs to sign off on the arrangement.
It’s wise to consult with an attorney or legal professional before going forwarding with selling all or part of your structured settlement, but this general information should answer some of your questions. There are pros and cons of gaining a lump sum pay out, but the right decision depends upon your circumstances.