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What is a structured injury settlement?

Sometimes it's wiser to receive the money over time. 

You often hear of a structured settlement when someone is awarded a large sum of money in a lawsuit. Have you ever wondered why injury settlements are paid that way or how it works?

Two main reasons for structuring a settlement are (a) to make sure the money lasts and to (b) to make sure the money is used for the intended purpose. Structured settlements are most common when there has been a catastrophic injury involving massive medical expenses and loss of earning power.

If (Heaven forbid) you or a loved one suffers disabling injuries, you should insist that your personal injury attorney structure any compensation recovered.

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Why not just take a lump sum payout?

Lottery winners never take the annual payout. They always take the lump sum cash option. (Hopefully after hiring professionals to help them shelter and invest the money.)

The proceeds of a personal injury lawsuit are different. In a major personal injury case such as spinal cord paralysis, brain injury or third-degree burns, the verdict or settlement may exceed $1 million. But that money is not a jackpot. It must cover ongoing medical care, such as surgeries, pain medication, physical therapy or wheelchairs. The money must make up for future loss of income or reduced earning capacity if the person can't work or has to take a lesser-paying job. It is meant to provide for years or a lifetime of needs.

A structured settlement means that some or all of the money is paid out over time rather than in one big check. It might be doled out annually over a fixed number of years. Or it might be arranged to pay out for specific needs: medical bills, nursing home care, mortgage payments, a monthly stipend.

You might know of someone who bought a fancy car or dream vacation after a big lawsuit payout. Despite lavish appearances, that person may be privately suffering and struggling from their injuries. And if they are spending like there's no tomorrow - see how they're doing in five or ten years when the money is gone and they need expensive medical services.

A structured settlement protects the injured party

Sometimes a structured settlement protects the person from themselves. It might be set up so the individual can't gamble it away or otherwise burn through the money in a short time. Or it might be arranged so that unscrupulous family members can't siphon the money for other purposes.

When the recipient is a minor, New York statute requires that any personal injury settlement be approved by the court. The money is subject to strict limitations and is not simply turned over to the parents. It is held in a special account on behalf of the child until the age of majority. Upon turning 18, the recipient can do what they want with the money, but ideally it is invested or placed in a trust to continue to provide for their future needs.

There are endless ways to structure a settlement, including taking part of the money in a lump sum and setting the rest aside for the future. A reputable personal injury attorney will explain the options and make sure they money is there years from now to cover the needs of the individual and the family.

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