Benefits
The Benefit of Structured Settlements
Risk
Structured Settlements:
Annuities are purchased by the defense to provide a stream of guaranteed payments over the lifetime of an injured claimant. These annuities are provided by a very highly rated company. Once the transaction is in place no one has access to the corpus of the settlement. The beneficiary, the inured claimant, is totally protected from the uncertainties of the market; from their own human nature and from well meaning, but unsophisticated friends and relatives. The annuity is guaranteed by a life insurance company that invests billions of dollars and thus guarantees a solid rate of return, tax-free.
Trusts:
Funds from a settlement are passed by the defendant to the injured party, directly. The injured party , the claimant or guardian, must make a decision on where and how to create the trust. A bank or brokerage firm is usually the trustee. The trust is usually managed by either a bank’s trust department or a brokerage firm. The trust is at the mercy of the investor. In order to provide a higher return, trusts must invest in riskier, more aggressive investments. The return can not be predicted since the investment is placed in a volatile market.
Conclusion:
A structured settlement provides a better guaranteed return than the trust.
Return
Structured Settlements:
The internal rate of return is fixed at the time of settlement. The structure is paid for by the defendant who purchases a stream of benefits with a portion o the settlement protocols. The advantage is a tax-free income as outlined by the Internal Revenue Code.
The return is guaranteed for life. Since the payments are tax-free, an additional 2 to 3% of yield is needed on a taxable investment in order to match the return on the structured settlement, depending upon the future tax bracket of the injured party.
No other financial instrument provides this benefit and there and management fees or costs involved with a structure.
Trusts:
In order to provide a fixed return, the trust invests in fixed income debt instruments which are taxable. (The exception is municipal bonds which generally have a lower rate of return than the structured settlement.) The trust is taxed on the income. Tax rates range from 15% to 39.6% based upon current federal rates. State and local taxes are also present.
Investments for growth are not suitable for the payment of ongoing expenses since the returns are not guaranteed and these assets must be converted to cash to pay expenses. There is no control of fees, costs or commissions to brokers ghat move the funds. A typical minor’s trust can be moved as much as five times per year. Each time a transaction takes place, fees, cots and commissions will be deducted from the corpus. A 12% gain can easily be reduced by 7% after taxes, fees, costs and commission are paid.
Even if the trust portfolio does poorly, management fees and costs as well as taxes still must be paid.
Conclusion:
A structured settlement is guaranteed and not subject to ups and downs
of the marketplace as well as fees, costs and taxes.
Liquidity
Structured Settlements:
At the time of settlement, a stream of payments, based upon the actual needs of the injured party, can be formulated and be provided by the annuity. The structured settlement annuity is the only financial instrument that can guarantee lifetime income and provide an implementation of the settlement which takes advantage of the favorable tax-free basis within the Internal Revenue Code.
The structured settlement can be designed to pay for necessities such as living expenses, future medical expenses and lost income. Specific needs such as college tuition, rent, mortgage payments and incidentals can be encompassed into the stream of payments fro the lifetime of the injured party.
Trusts:
Withdrawal of funds from the corpus is a usual circumstance. When funds are withdrawn, the return will diminish. A court of legal guardian must approve of each and every transaction.
Most trusts are established in cases involving minors. The most devastating happenstance is that when the minor reaches majority the withdrawal of the trust is totally uncontrolled. The minor, now an adult, has access to the entire remaining settlement funds. How will the young adult protect their recovery?
Conclusion:
A structured settlement, carefully designed, is more advantageous to the injured party.
