Evolution of Structured Settlements — How They’ve Changed over Time

How have structured settlements changed and evolved over the years? The IRS and other parties first started considering structured settlements as a form of court awards. Professionals now understand how the law has changed since then, and these types of awarded settlements have become more a part of injury law and other practice areas.

The Beginning

Some 30 years ago, the National Structured Settlements Trade Association (NSSTA) and other parties established the recognition of structured settlements as a type of court-ordered settlement.

Within the next couple of years, financial agencies clarified that the interest and the principle of these structured settlements might be exempt from income tax.

This way, you can take the original lump sum of a settlement, which is tax-free, and make it into a structured set of payments or an annuity model that will provide for the plaintiff’s medical bills and other costs over time. Structured settlements became a practical way to fund injury costs; rather than taking an enormous check and spending it — the injury victim has regular incoming payments to budget for medical visits, transportation, home care, etc.

Guaranteed Payments and Trusts

As plaintiffs and their attorneys got used to using and requesting structured settlements, they started to put these awarded amounts into trusts that would provide for injury victims or others long-term. The trust is another long-term financial vehicle that complements the idea of the structured settlement — that instead of being released as a lump sum, the payment is set up to provide consistent financial support for recipients.

Certain types of guaranteed payments help make these structured settlements more credible to the parties awarded some settlement in court.

New Kinds of Structured Settlements

At the same time, annuities as a financial vehicle were evolving, too. Annuities professionals created different structures for these payment plans, and some applied to structured settlements. The characteristics of retirement annuities, for example, are similar to the setup of a structured settlement from a court award.

At the same time, the system has evolved to offer more specialized types of funds to handle the output of a structured settlement. That includes the use of designated settlement funds and qualified settlement funds. A qualified settlement fund assumes the tort liability from the original defendant party before settlement, where a qualified trustee plays a significant role. The designated settlement fund (created in 1986) allows for certain disbursements of lawyer fees and other logistics.

Over time, structured settlements continued to evolve, with more convenient features for delivering that consistent, month-to-month, and year-to-year value to recipients. Courts figured out how to best use the structured settlement to everyone’s advantage and how these vehicles can make litigation easier.

But sometimes, a structured settlement holder needs the money more immediately than the payment plan provides! Life changes and sudden financial issues are some common examples. In these cases, many types of structured settlements can be sold for an immediate lump sum. Talk to District Settlement Finance about the options at your disposal if you have been awarded a structured settlement in a court case.