Structured Settlements vs. One-Time Payments for Minors and Adults

When settling a personal injury or worker’s compensation claim, there are two options for compensation: a one-time, lump-sum payment, or a structured settlement. Both options have benefits, but the decision shouldn’t be made lightly—it can have a huge impact on the future financial stability of the recipient. Below we explore the pros of each payment method as it pertains to both minors and adults.

Structured Settlements

A structured settlement is a financial agreement in which the victim receives their settlement in a series of payments instead of a single large amount. The payments can be scheduled to occur monthly, yearly, or divided into large sums for specific milestones in life. Structured settlements are ideal for individuals who require long-term medical care or assistance in managing their finances.

Benefits of Structured Settlements for Minors

In most cases, minors cannot access their settlement funds until they reach the designated payout date, which begins after age 18. The court goes to great lengths to ensure the funds will be used solely to benefit the minor. The settlement is put into a blocked, interest-bearing account or structured settlement annuity. No one can access the funds except for the minor on his or her 18th birthday. A structured settlement is a popular option for minors as it can help secure a financially stable future for those who have suffered a personal physical injury, wrongful death and loss of a parent, or emotional trauma. Here are some key features:

• Long-term Financial Security: A structured settlement ensures a steady and consistent source of income. Often these settlements will be made available at critical life stages, such as college tuition or buying a first home. These settlements can be tailored to meet the specific needs of the minor.
• Tax Benefits: Payments from structured settlements are usually tax-free, maximizing the value of the funds over time.
• Protection From Mismanagement: Structured settlements help to ensure the young adult has the maturity to handle the money. Statistics show that most victims who receive one large settlement at 18 typically spend it within 5 years.
• Court Oversight: In cases involving minors, the court usually oversees the settlement to ensure the funds are managed properly and always in the best interest of the minor.
• Secure Payments: Structured settlements are funded through annuities issued by the insurance company, making them a safe and reliable source of income over time.

Benefits of Structured Settlements for Adults

For adults who are victims of a personal injury or worker’s compensation injury, structured settlements offer a stable and secure source of income, ensuring funds are available when needed most. Here are some key benefits:

• Protection for Special Needs Victims: Structured settlements can be paired with special needs trusts to make sure the victim is eligible for all government benefits while still receiving their settlement payments.
• Consistent & Reliable: Structured settlements are not affected by inflation or changing interest rates.
• No Risk for Mismanagement: With payments being dispersed over time, there is little to no risk of poor money management.
• Tax-Free: Structured settlements are not subject to capital gains and are tax-free under US law.
• Customizable: Structured settlement payments can be tailored to meet the victim’s needs.

Lump-Sum Payments

A lump-sum payment (one-time payment) pays the victim the entire settlement amount in one payment upfront.

Benefits of Lump-Sum Payments for Minors

While structured settlements are usually preferred and recommended for minors, there are some unique circumstances in which lump-sum payments can be beneficial:

• Financial Support for the Family: Often the family of an injured minor incurs major debt as a result of the injury, from medical bills, lost wages of a parent who has to quit their job to care for the minor, etc. Receiving the funds in full when the claimant turns 18 can help pay off medical expenses and debts relieving hardship for the family.
• Flexibility: Unlike structured settlements, a lump-sum payment allows the recipient the freedom to invest it however they like, taking into consideration the economy and inflation.

Benefits of Lump-Sum Payments for Adults

Assuming that an adult personal injury or worker’s compensation victim is more mature and capable of responsibly handling a large sum of money, there can be benefits to lump-sum payments. Here are a few examples:

• Immediate Access to Funds: Receiving the entire settlement can be crucial for those who need to cover the cost of medical bills, legal fees, and any debt they incurred after the injury.
• Investment Opportunities: A lump-sum payment can allow the recipient the freedom to generate more income from the settlement—whether it’s starting a business or investing in the stock market.
• No Restrictions: Lump-sum payments don’t come with the limitations that accompany structured settlements. The funds can be used at any time and for any purpose without a predetermined disbursement schedule.

Conclusion

Settling a claim can be extremely complicated. The good news is you do not have to go through it alone! At Casper & Casper, we handle all the difficult legal issues so you can focus on your or your loved one’s recovery and well-being. Our seasoned attorneys have decades of experience and will help you navigate this challenging time and get you the outcome you deserve. Give us a call today for a free consultation!