Structured Settlement Guide
A structured settlement is a financial or insurance arrangement,
including periodic payments, that a claimant accepts to resolve a personal
injury tort claim or to compromise
a statutory periodic payment obligation.
Structured settlements were
first utilized in Canada and the United States during the 1970s as
an alternative to lump sum settlements. Structured settlements are
now part of the statutory tort law of several common
law countries including: Australia, Canada, England and the United
States. Although some uniformity exists, each of these countries has
its own definitions, rules and standards for structured settlement.
Structured settlements may include income tax and spendthrift requirements
as well as benefits.
Structured settlement payments are sometimes called
“periodic payments”. A structured settlement incorporated into
a trial judgment is called a “periodic payment judgment”.
The United States has enacted structured settlement laws and regulations
at both the federal and state levels. Federal structured settlement
laws include sections of the Federal Internal Revenue Code. State structured
settlement laws include structured settlement protection statutes and
periodic payment of judgment statutes. Medicaid and Medicare laws and
regulations impact structured settlements. To preserve a claimant’s
Medicare and Medicaid benefits, structured settlement payments may
be incorporated into “Medicare Set Aside Arrangements” and “Special
Needs Trusts”.
The United States defines “structured settlement” for Federal income
taxation purposes in Internal Revenue Code Section 5891 (c) (1) as
an "arrangement" that meets the following requirements:
- A structured settlement must be established by:
- A suit or agreement for periodic payment of damages excludable
from gross income under Internal Revenue
Code Section 104(a)(2); or
- An agreement for the periodic payment of compensation under
any workers’ compensation law excludable
under Internal Revenue Code Section 104(a)(1); and
- The periodic payments must be of the character described in subparagraphs
(A) and (B) of Internal Revenue Code Section 130(c)(2)
and must be payable by a person who:
- Is a party to the suit or agreement or to a workers compensation
claims; or
- By a person who has assumed the liability for such periodic
payments under a Qualified Assignment
in accordance with Internal Revenue Code Section 130.
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