Structured annuity settlement
A structured settlement is a financial or insurance arrangement, defined by Internal Revenue Code as periodic payments; a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada after a settlement for children affected by Thalidomide.[1]
Structured settlements are widely used in product liability or injury
cases (such as the birth defects from Thalidomide). Benefits of a
structured settlement can be to reduce legal and other costs by avoiding
trial. [2] Structured settlement cases became more popular in the United States during the 1970s as an alternative to lump sum settlements.[3] The increased popularity was also due to several rulings by the IRS, an increase in personal injury
awards, and higher interest rates. The IRS rulings changed policies
such that if the requirements were met then claimants could have federal
income tax waived.[4] Higher interest rates resulted in lower present values, hence annuity premiums, for deferred payments versus a lump sum.
Structured settlements have become part of the statutory tort law of several common law countries including Australia, Canada, England and the United States. Structured settlements may include income tax and spendthrift requirements as well as benefits and are considered to be an asset-backed security.[5] Often the periodic payment will be created through the purchase of one or more annuities, which guarantee the future payments.[6]
Structured settlement payments are sometimes called periodic payments
and when incorporated into a trial judgment is called a “periodic
payment judgment."
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