A structured settlement occurs when a plaintiff settles a claim for monetary payment. At this time it is usually proposed by the attorney or a financial consultant to pay the settlement in installments over a period of time rather than in a lump sum.
There are several advantages associated with having a structured settlement. Firstly, with a structured settlement there is the opportunity to pay less tax. If set-up properly they can reduce the amount of tax on the settlement and in some cases it can also be completely tax free.
Secondly, it allows money to be distributed over a period of time thus reducing the chances of the money being squandered. The money can then be used for its intended purpose such as medical care in the future. It can also be beneficial to dependents such as minors when payments are provided for tuition and future disbursements when they become adults.
One of the most common complaints associated with structured settlements is that recipients feel trapped financially by the limited amounts they receive in their periodic payments. If they wish to make a large purchase such as a house or car they may have to wait until future payments. A common clause with structured settlements is you can't borrow against future payments. Another disadvantage to be considered is this arrangement will not be ideal for everyone. Some people want the liberty to control their money and make their own decisions on investments.
