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When Should I Accept a Structured Settlement?

Published on Aug 30, 2019 at 7:30 pm in Legal Information.

When you’ve been through a lawsuit and are granted compensation, you have to decide if you want your money in a lump sum or in a structured settlement. Of course, both options have their advantages and disadvantages. Lump sums are beneficial immediately, whereas structured settlements are more helpful for long-term. If you’re thinking of choosing a structured settlement, you’ll need to know the pros and cons of the agreement.

What is a Structured Settlement?

Rather than your settlement coming to you as one large sum, a structured settlement breaks your money up into regular payments. You’ll receive a smaller lump sum at first so you can pay off lawyer fees and pressing medical bills. After that, you’ll get the rest of the money in regular installments for a designated period of time. This could be over the course of a few years or for the rest of your life, depending on your settlement amount.

It can be beneficial to accept a structured settlement if your settlement amount is above $150,000. Smaller and medium-sized settlements might not be as practical when spread out because they would divide down to a small amount each month. When the total is over $150,000, though, your checks each month would be substantial enough that a structured settlement is often practical.

The best way to make a decision about accepting a structured settlement is with the help of a legal professional. No matter your case, a lawyer will be able to give you advice if you are offered a settlement and you’re not sure if it’s adequate compensation. They can also help you decide between a lump sum or structured settlement.

Pros of Structured Settlements

There are plenty of reasons to choose a structured settlement over a lump sum. Here are some of them:

  • Tax benefits. Funds from structured settlements are tax exempt under S. Code 104, while lump sum would be taxed by the state and federally before reaching your pocket. This means that you would eventually get more money from your structured settlement because you don’t have to payout any taxes.
  • Money management. This option is better if you need help with money management. When your money is given to you over an extended period of time, you can’t spend it all at once like most people are inclined to do. This also deters other people from asking you for loans from your settlement.
  • Future needs. This option is smart if you had catastrophic injuries that will require future medical care. This way, you know you’ll be receiving money in the future and will be able to continue to pay medical bills. It’s important to think about future needs when deciding on a structured settlement.

Cons of Structured Settlements

Even though there are plenty of advantages to a structured settlement, there are also disadvantages to this choice. Here are a few cons:

  • You don’t get all your money right away
  • Keeps you from making large investments, like buying a house
  • Doesn’t work well with small or medium settlements

Structured Settlement Protection Act in Maryland

Since reforms in 2016, Maryland has adopted strict structured settlement protection acts. Maryland Senate Bill 734 from 2016 was proposed to protect people with structured settlements after what happened in Baltimore in 2015.

An article in The Washington Post described how a structured settlement factoring company, called Access Funding, preyed on cognitively impaired victims of lead paint poisoning in 2015. The company sent letters in the mail offering to buy the victims’ large settlements for a very small fraction of their full settlement. Some structured settlements that were valued over a million dollars were reduced to only tens of thousands.

Access Funding was not the only company with predatory business practices. If you receive letters or calls from companies offering money now in exchange for some or all of your monthly checks, be careful. If you sign an agreement, make sure it is definitely what you want or talk to a lawyer first to confirm that you are not getting less than you deserve.

Need Legal Advice?

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