Most people are unaware of the term, structured settlements. A structured settlement is a payment arrangement between two parties in order to fulfill the monetary claim of one. Structured settlements involve two parties, a defendant and a victim or the injured party. The defendant agrees to pay small amounts of money on a periodic basis to the injured party in order to account for the injury caused.
These payments are an alternative to the traditional lump sum payment to settle a dispute and are a part of the statutory framework of many countries. Structured settlements have been in use since the 1970s and are a good way of settling an issue without making a large dent in the pocket of the defendant.
A settlement results in a long-term payment obligation on part of the defendant in exchange of dismissing the lawsuit. The payments made are either monthly or yearly, depending on the contract or agreement between the involved parties.
Selling Structured Settlements
An important point regarding structured settlements is that they can be easily sold to fulfill an immediate financial need. These settlements are a very useful means of gaining huge amounts of tax-free money without any hassle.
Therefore, whenever a situation like arranging money for the college education or paying for the medical bills arises, people start considering selling structured settlements. However, prior to the sale of a settlement, it is necessary to gain the approval of the court.
Attaining court approval in this regard is not a problem because the sale of structured settlements is legally approved in all states.
Legality of Structured Settlements
While planning to sell the rights to a structured settlement, people are doubtful about the legality of such an act. However, there is no need to be doubtful while selling structured settlements as it is legal. Majority of the states include a Structured Settlement Protection Act that highlights some of the requirements that need to be fulfilled while selling a structured settlement. Some requirements include the following.
- It is essential for the purchasing company to disclose all the financial conditions stipulated at the time of the sale of the settlement.
- As mentioned, the sale of a structured settlement requires an approval from the court. The court holds a hearing session where the judge makes a decision regarding the sale. The decision is based on whether the sale will prove to be useful for the receiver of the structured settlements. The seller is required to provide details such as the reason for the sale, the applicable discount rate, as well as other sources of income of the seller.
There are many other requirements that need to be fulfilled prior to the sale of a structured settlement. It is best to find a list of all the requirements prior to selling structured settlements.
Advantages of Selling Structured Settlements
One of the most basic advantages of structured settlements is the monetary security that the arrangement offers. The recipient gets a determined amount of money every day in good and bad times and can use this amount in fulfilling various monetary needs.
Another important advantage of selling structured settlements is that the lump sum amount of money received by the sale is tax-free. The money is not added to the annual gross income and thereby cannot be taxed. This is because according to the rules of Internal Revenue Code, any amount received for a personal injury or loss is not categorized as income and cannot be taxed.
Whenever a structured settlement is sold, the rules mentioned in the agreement are transferred to the purchaser of the settlement. Therefore, if the earning from a settlement was tax-free for the previous recipient, it will be tax-free for the new recipient as well.
Tips for Selling Structured Settlements
Selling structured settlements is not an easy process. However, using the tips mentioned below, the sale process becomes easy.
- Although people usually sell their settlement because of an emergency, however, sometimes people also sell settlements because they have another lucrative investment opportunity in mind. However, getting the sale approved from the court for such a situation might not be possible.
- It is best to sell structured settlements to individuals that have a special need or situation. This might help you in getting a better bargain for your settlement.
- Value your settlement beforehand and sell only a portion of your settlement if that fulfills your need.
Conclusion
Selling structured settlements is a very useful means of collecting the desired amounts of money to fulfill an immediate monetary need. However, it is best to find a competent and trustworthy individual to sell your structured settlement.