How to make funds from a Car Accident Last a Lifetime
Posted by
Christina MedlinMay 04, 2007 9:17 AMAlthough there are many options available to individuals that recover substantial judgments from a car accident or other personal injury action, structured settlements have become increasingly popular over the last decade. A structured settlement refers to a settlement that includes 1) a payment of an immediate lump sum, 2) includes a specific set of payment over time, fixed in time and duration and 3) has some tax benefits.
Structured settlements are superior to other forms of payment when life expectancy is uncertain and there are lifelong needs from the injury. For example, if the injured person receives a s$100,000 settlement, is 30 years old with injuries that reduce her earning capacity, require ongoing medical care and shorten her life expectancy. Under a structured settlement the plaintiff can settle for an immediate $4,000 payment and a structured settlement of lifetime monthly $600 payments - all of which are tax tree. The disadvantage of the structured settlement is that once the duration of the structured settlement and the amount of the payments can not be changed.
When minors receive compensation from a car accident or other personal injury action, the parents and/or guardian ad litem often establish a structured settlement. For example, a 15 year old with significant and permanent injuries that require extensive medial care would benefit from a structured settlement because it will ensure that the money is used for her benefit and for the care she needs. She can receive a small immediate payment and have the remainder of the settlement paid out over the course of her lifetime. In contrast, if a lump sum payment is approved, at age 18 the girl will receive the entire settlement - without regard to expenses from age 15 to 18. Since it is likely she will continue to live with her parents, the funds will funnel directly to the parents - with no assurance that the girl will receive the appropriate medial care and that the money is used for the girls benefit not the parents.
Comments summarized from After the Judgment, 88 Va. L. Rev. 1757 (Dec. 2002)