The Benefits of Structuring Taxable Settlements

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November 20, 2017
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The Benefits of Structuring Taxable Settlements

Most of us are all familiar with traditional structured settlements that are utilized in physical injury settlements that provide injury victims future, guaranteed tax-free benefits.  You also are probably familiar with the concept of structured attorneys’ fees to provide attorneys with tax-deferred future periodic payments that earn either fixed, guaranteed or market-related returns.

In addition to contingency-based attorneys’ fees, structured settlements that offer tax-deferred market-related returns are also available to claimants on all types of non-physical injury cases including, but not limited to, punitive damages, employment disputes, discrimination, breach of contract, property damage, long-term disability, environmental claims, sexual harassment, fraud and many other non-physical injuries.

For all legal settlements that utilize structured settlements, the future periodic payments must be established during the settlement negotiations and incorporated into the settlement documents to preserve the tax-free or tax-deferred status of the payment stream.

NON-QUALIFIED SETTLEMENT OPTIONS

Structured settlements have been used to help claimants defer taxes for well over twenty years and have become increasingly popular in the last five years.  The mechanism is the same as for structured settlements in physical injury cases.  The concept of a structured settlement must be addressed during the settlement negotiation process since the defendant or their insurance carrier must issue a separate check to purchase the structured settlement.  The claimant and/or claimant’s attorney cannot have constructive or real receipt of the total settlement.  Additionally, special language, including the actual payments, must be incorporated into the settlement documents in order to follow the tax guidelines for these cases.   The AVITAS Team at Millennium Settlements can assist throughout the entire process—from case evaluation, quoting to document preparation for the attorneys.

The AVITAS team can also provide you with a variety of settlement options to address your clients’ future needs and financial goals.  Options are available to provide either tax-deferred, fixed-growth or tax-deferred payments with market-related returns.  If your client prefers fixed-guaranteed growth, the very same life insurance markets providing traditional structured settlement annuities have options for non-qualified cases.   If your client wants market-related returns, then your Millennium consultant can offer exclusive options through Structures, a leading innovator in the structured settlement industry. Millennium Settlements and Structures are wholly owned subsidiaries of Integrated Financial Settlements.

OPTIONS TO MATCH CLIENT RISK PROFILE

  • Traditional Structured Settlement Annuity: provides fixed-guaranteed growth. Life-contingent payments are available.
  • Other Annuity Options Utilizing a Non-Qualified Assignment with Structured Assignments Inc.
  • Your client can select a guaranteed Single Premium Immediate Annuity (SPIA) with payments starting immediately or guaranteed Deferred Income Annuity (DIA) with payments deferred 12 months or longer.
  • A Fixed Indexed Annuity (FIA) is an option that has unique features and can guarantee the principle with upside potential tied to an index such as the S&P 500 or other.
  • If absolute security is desired, TFSS-NQ (Treasury Funded Structured Settlement) is an option where the future periodic payments are backed by United States Treasuries.  This is also an option for a structured installment sale (sale of a qualifying property or business).

 

MARKET BASED SOLUTIONS

You may already be familiar with Fee Structure Plus®, our market-based program for contingent attorney fees. Settlements Plus™ is our market-based program for the plaintiff and can be utilized in either physical injury or non-physical injury cases.  If your client is looking for market-related growth and wants to defer the taxes from his/her settlement, Settlements Plus™ is an ideal solution to consider.  Settlements Plus and Fee Structure Plus allow plaintiffs and attorneys to work with their trusted financial advisor to manage the funds directly.

BENEFITS TO PLAINTIFFS

By establishing a structured settlement, plaintiffs have the ability to defer taxes on the settlement proceeds, invest pre-tax income, and time the future payments to meet their unique needs.  Depending of the settlement solution, the design of the future payments is extremely flexible.  Plaintiffs can begin payments within thirty days to off-set lost income or defer up to 20 years to help supplement retirement.

To learn more about the options available to you and your clients for non-qualified settlements, please contact your AVITAS representative today.

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