Structured settlement

A structured settlement is a negotiated financial or insurance arrangement whereby a claimant agrees to resolve a personal injury tort claim by receiving some part of the settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. As part of the negotiations, a structured settlement can be offered by the defendant or demanded by the plaintiff. Ultimately both parties must agree on the terms of settlement. Structured settlements were first utilized in Canada after a settlement for children affected by Thalidomide. Structured settlements are widely used in product liability or injury cases (such as the birth defects from Thalidomide). A structured settlement can be implemented to reduce legal and other costs by avoiding trial. Structured settlement cases became more popular in the United States during the 1970s as an alternative to lump sum settlements. The increased popularity was due to several rulings by the U.S. Internal Revenue Service (IRS), an increase in personal injury awards, and higher interest rates. The IRS rulings stated that if certain requirements were met, claimants would owe no Federal income tax on the amounts received. Higher interest rates result in lower present values, hence lower cost of funding of future periodic payments. 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. Often the periodic payment will be funded through the purchase of one or more annuities, which generate the future payments. Structured settlement payments are sometimes called periodical payments and when incorporated into a trial judgment in New York, is called a "structured judgment"

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