Although most clients that win a personal injury case elect to take home a lump sum payment. Some of them opt for a structured settlement. What might motivate a plaintiff to request a structured settlement?
What is a structured settlement?
If the plaintiff has requested such an arrangement, a part of the award gets set aside as a lump sum, and that is given to Injury Lawyer in Mississauga, representing the plaintiff. Then the rest of the award gets paid to the plaintiff over a pre-determined span of time.
How is the arrangement set up?
The sum of money that will get used to make the time payments gets sent to a type of insurer, usually a life insurance company. The plaintiff decides the specifics, regarding how the arrangement will satisfy the plaintiff’s wishes. For instance, the plaintiff chooses the length of the structure, when payments should be made, the size of each payment and how to proceed, if money remains, following the plaintiff’s death.
Those specific requests get sent to the insurance company. That company then arranges for each payment to go out in a manner that agrees with what the plaintiff has requested.
What are the advantages that are linked to a structured settlement?
That is a good arrangement for someone that finds it hard to save money. Some people have not learned how to set aside some money for the future, even when they have a surplus in their checking account.
Someone that is not a saver, might be tempted to come up with ways for spending the lump sum in a short space of time. That is not the ideal way to deal with such a large amount of money, because it leads to a rapid depletion of the awarded money.
By the same token, a structured arrangement eliminates the source of taxable money. Although the government does not tax money that serves as compensation for a loss, it does tax things like interest and dividends from an investment.
So, what does that fact have to do with structured payment of money in a compensation package? It relates to the appropriate action to take, after gaining access to a large sum of money. That appropriate action does not entail spending the bulk of that lump sum.
Instead, it would be appropriate to put some money in a savings account, where it could earn interest. In addition, some money might be invested in a business endeavor. Then any profits made by that same endeavor would be dividends, like the dividends paid the holders of stock.
The interest and dividends would not be small sums of money. Due to their considerable size, each of them could be taxed by the government.
