What Is a Structured Settlement in a Personal Injury Case?
After a serious accident, receiving compensation can provide much-needed financial relief. However, personal injury victims often face an important decision: Should they receive their settlement money all at once or through payments over time?
A structured settlement offers an alternative to receiving a single lump-sum payment. Instead of obtaining the entire settlement immediately, an injured person receives scheduled payments according to an agreed arrangement.
For someone recovering from a serious accident in the greater St. Louis area, the personal injury attorneys at Labovitz Law Firm know how structured settlements work and can help them make informed financial decisions.
How Does a Structured Settlement Work?
In a personal injury case, a structured settlement allows an injured person to receive compensation through periodic payments rather than one immediate payment. The parties negotiate the payment schedule as part of the settlement agreement. Payments may be arranged to provide:
- Monthly income
- Annual payments
- Larger payments at designated intervals.
- Funds for anticipated future medical expenses.
- Payments continuing for a specified period or lifetime.
Structured settlements are commonly funded through annuities purchased from insurance companies.
Under 26 U.S.C. § 130, qualifying arrangements generally require payments to be fixed and determinable. Recipients ordinarily cannot change the timing or amounts after the arrangement is finalized.
Example of a Structured Settlement
Consider a St. Louis car accident victim who receives compensation for permanent injuries. Instead of taking the entire settlement immediately, the person may negotiate an initial payment to cover pressing expenses, followed by monthly payments for future living costs.
Additional payments might be scheduled for anticipated medical procedures or other significant expenses. The specific arrangement depends on the settlement amount, funding terms, and the injured person’s financial needs.
What Is the Difference Between a Structured Settlement and a Lump-Sum Settlement?
Both options provide compensation, but they distribute money differently.
| Structured Settlement | Lump-Sum Settlement |
| Payments arrive over time. | Compensation is paid at once. |
| Provides predictable future income. | Provides immediate access to funds. |
| Payment terms are generally fixed. | Recipient controls how funds are managed. |
| May help fund long-term expenses. | May be useful for immediate major expenses. |
| Limited flexibility after finalization. | Greater flexibility, but requires financial planning. |
Neither option is automatically better. The appropriate choice depends on the person’s injuries, medical needs, existing financial obligations, and long-term goals.
What Are the Benefits of a Structured Settlement?
For some injury victims, scheduled payments provide stability during a difficult recovery.
1. Predictable Long-Term Income
A structured settlement can provide regular payments to help cover living expenses. This may be particularly valuable when an injury prevents someone from returning to their previous employment.
2. Support for Future Medical Expenses
Serious injuries may require rehabilitation, ongoing treatment, or future surgeries. A payment schedule can be designed around anticipated medical needs, although unexpected expenses may still arise.
3. Reduced Pressure to Manage a Large Payment
Receiving substantial compensation at once can create difficult financial decisions. Periodic payments may reduce the temptation to spend settlement funds too quickly.
4. Potential Tax Advantages
Under 26 U.S.C. § 104(a)(2), qualifying compensatory damages received because of personal physical injuries or physical sickness are generally excluded from federal gross income. This exclusion can apply to both lump-sum and periodic payments.
However, punitive damages, certain interest payments, and compensation for some nonphysical injuries may be taxable. Tax treatment depends on the nature of the recovery, not simply whether it is structured.
What Are the Disadvantages of a Structured Settlement?
Although structured settlements provide benefits, they also have limitations.
1. Limited Access to Funds
Once the agreement is finalized, recipients generally cannot freely change their payment schedules. This can create difficulties when unexpected medical bills or financial emergencies arise.
2. Inflation Can Reduce Purchasing Power
Fixed payments may lose purchasing power as living expenses increase. A settlement should account for anticipated future needs when the payment structure is negotiated.
3. Dependence on the Payment Provider
Structured settlements commonly rely on an insurance company or other obligated entity to make future payments. The financial strength of the responsible company is an important consideration.
4. Selling Future Payments Can Be Costly
Some companies offer immediate cash in exchange for future structured settlement payments. These transactions often provide substantially less than the total amount of payments being transferred.
Missouri law requires court approval for qualifying transfers, helping protect recipients from certain unfavorable arrangements.
What Does Missouri Law Say About Structured Settlements?
Missouri regulates transfers of structured settlement payment rights under Revised Statutes §§ 407.1060 through 407.1068. Under § 407.1062, qualifying transfers generally require advance court approval.
The law also establishes disclosure requirements concerning payment amounts, transfer expenses, and the money the recipient would receive. Under § 407.1064, applications may be brought before the appropriate circuit court.
These protections primarily concern selling or transferring existing payment rights, rather than choosing a structured settlement during the original personal injury case.
When Might a Structured Settlement Be Appropriate?
Structured settlements may be worth considering when injuries create long-term financial needs. Common situations include:
- Traumatic brain injuries requiring ongoing care.
- Spinal cord injuries involving permanent disability.
- Serious workplace accidents.
- Motor vehicle collisions causing lasting impairment.
- Injuries that substantially reduce earning capacity.
- Cases involving injured children.
For example, a St. Louis pedestrian accident victim with permanent mobility limitations may need reliable income and continuing medical support. A structured settlement could provide scheduled payments to address some of those anticipated expenses.
However, individuals with substantial immediate debts or unpredictable treatment costs may need greater access to funds.
Can a Structured Settlement Be Changed After It Is Finalized?
Generally, structured settlement payment schedules are difficult to modify once finalized. Qualifying arrangements often prohibit recipients from accelerating, delaying, increasing, or decreasing payments.
A recipient may be able to sell certain future payments, but Missouri requires court approval for covered transfers. Selling payments can reduce the total financial value received.
Before signing a settlement agreement, injured individuals should carefully review the payment schedule and potential long-term consequences.
Should You Choose a Structured Settlement After a Personal Injury?
The decision should reflect your medical condition, financial responsibilities, and anticipated future expenses. Before accepting an arrangement, consider:
- How much money you need immediately.
- Whether you can return to work.
- Your anticipated medical expenses.
- Existing debts and household costs.
- The payment provider’s financial stability.
- Inflation and long-term purchasing power.
- Potential tax consequences.
- Whether a combination of immediate and periodic payments is appropriate.
A personal injury attorney can help evaluate settlement terms and coordinate with financial or tax professionals when appropriate.
Frequently Asked Questions About Structured Settlements
Are Structured Settlement Payments Tax-Free?
Qualifying payments for personal physical injuries or physical sickness are generally excluded from federal income tax. However, other categories of damages may receive different treatment.
Can You Receive Some Money Immediately?
Yes. Some agreements combine an initial payment with scheduled future payments. The terms must be negotiated before the settlement is finalized.
Are Structured Settlements Only for Large Personal Injury Cases?
No. They may be used in different types of cases, although the costs and practical benefits should be evaluated in relation to the settlement amount.
Contact Labovitz Law Firm for Personal Injury Help in St. Louis
Choosing how to receive compensation can affect your financial security for years. At Labovitz Law Firm, we understand that injured individuals may face medical bills, lost income, and uncertainty about their future.
Our firm helps personal injury victims throughout St. Louis, Missouri, pursue compensation and evaluate settlement options.
If you or someone you love suffered injuries because of another person’s negligence, contact Labovitz Law Firm to discuss your personal injury case and potential settlement options.
