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How Is a Settlement Paid Out? 

The compensation received for personal injury sustained in car accidents (in Des Moines, IA) is typically paid out as a lump sum or a series of installments. A structured settlement can be tailored to meet the specific needs of an individual. However, these terms can’t be changed once agreed upon. 

Receiving this Settlement 

Some personal injury claims for car accidents in Des Moines, IA, don't make it to trial. Instead, defendants and plaintiffs negotiate compensation as a structured settlement or lump sum payment.

These structured settlements are set up so that the plaintiff receives monthly payments for a certain amount of time. Before individuals agree upon a structured settlement, they should discuss the payout options and full terms of a specific contract with financial advisors or Des Moines car accident lawyers. Here are some of the most common ways a settlement is paid out and the considerations associated with such methods:

Factors When Accepting Payout

What Factors Should Be Considered When Accepting a Lawsuit Payout? 

When receiving this settlement, an individual should make some vital considerations to ensure they are being financially savvy. These include:

  • Financial management skills

  • Tax obligations 

  • Spending habits

 

From here, people can decide what payment option is best for them.

Lump-Sum Settlement 

A lump-sum payout is exactly that – a client receives a lump sum of money as their settlement. No other money is offered to this client once the lump sum has been paid. Some of the advantages of receiving this once-off payment are the ability to choose how these individuals wish to invest such funds and the liquidity offered. Regardless of what settlement option a client chooses, this payout is tax-free. However, any earnings from investments (if a person uses this money to invest) is taxed. 

Structured Settlements 

Structured settlements don’t provide individuals with the benefit of having an entire settlement amount paid at once. Thus, these clients don’t have the opportunity to invest this money at their own discretion. 

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Nonetheless, a qualified structured settlement broker is equipped to construct the qualified funding asset (being an annuity in most instances) to align with the individual's existing and future requirements. Additionally, the needs of this individual’s family are also taken into consideration when structuring a settlement agreement.  

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A person might wish to consider their money-management skills and long-term financial objectives when forming the terms of this structured settlement. Individuals may opt for a structured settlement if they're concerned about mismanaging this lump sum and wish to have the security offered by long-term and regular payments. 

Start and End Dates for Structured Settlements 

Payment can start immediately. Otherwise, an individual might wish to delay these payments to gain a longer accumulation period. This is because the longer the accumulation period is, the greater the settlement’s value when the person begins taking distributions. 

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It’s vital to decide the duration period of these payments when choosing a structured settlement. An individual has the option between period-certain or life-only annuity. 

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A life-only annuity is going to be paid for the rest of a person's life while a period-certain annuity is paid for the length of time indicated in this agreement. In addition to the agreement's start and end dates, individuals can also negotiate: 

  • Death benefits

  • Distribution amounts 

  • Payment frequency 

Frequently Asked Questions

Frequently Asked Questions 

How is money distributed while resolving a claim with a structured settlement? 

Depending on the terms stipulated in the structured settlement, these payments might be distributed on a quarterly, monthly, or yearly basis. Additionally, these payments might be fixed amounts or decrease (or increase), according to the person’s specific needs. 

How do individuals pay tax on the funds received as a settlement? 

Section 104 (a)(2) of the US Federal Internal Revenue Code excludes the taxation of damages associated with the wrongful death or physical injuries sustained in a car accident. However, punitive damages caused by car accidents aren't excluded. Thus, the IRS collects these taxes on structured settlement funds that are negotiated as being punitive damages and distress associated with a lawsuit. 

How can individuals sell their structured settlement? 

The procedure involved in selling structured settlements involves conducting accurate research on companies designed to purchase these structured settlements. From here, a person can identify the best quote and obtain court approval for this transaction to take place. However, it’s highly recommended that a trusted advisor is consulted before making a sale. 

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