Structured Settlements - The making of a structured settlement (Viatical)

Structured Settlements 

 

The Making of Structured Settlements

Structured settlements have not always been available.  Victims who suffered a loss were often given a lump sum settlement, one single large check to do with what they pleased.

In many cases these lump sum settlements helped to solve some problems.  But in others they not only added new dimensions to the problem, they became problems all on their own.

In addition to having to work out new lifestyle arrangements because of the loss, victims also found themselves having to learn how to manage large sums of cash, something that doesnít come easily and/or without making many mistakes in the process.  With small amounts of cash, mistakes are typically pretty small.  With large amounts of cash, the mistakes can be catastrophic.

The Settlement Windfall

To someone who has never seen a weekly take home paycheck of more than $500, getting a huge net payment of a million dollars can seem like a windfall.  Most people have a hard time seeing how they could possibly go through a million dollars. 

Making a few investments, lending cousin Doris $25,000 to start her new pet care business, and coughing up $15,000 so that nephews David and Tommy can go to the good college just doesnít seem like that big a deal.  And of course long-time friend Charley has been out of work for the last 6 months and is about ready to lose his home.  If he got only $12,000, he could catch up on payments, the cable, the electric, pay the taxes, and afford to put some food in the house.  What are friends for? 

Then there is Mom and Dad who have been great through all of these recent problems and who could certainly use a nice vacation.  Not only may the lump sum settlement recipient see things this way, so may their families.  Pressure can be brought to bear, not so much out of selfish greed (though that can and does exist), but out a complete misunderstanding of what the function of this settlement is, what future costs will be, and how long the lump sum settlement must last.

A few more of these, the attorney fees, some accounting and tax prep charges, and paying off some medical bills, and that million dollars has now dropped to $500,000, and a few bad stock purchases and some nice gifts to worthy charities. and now itís down to $400,000, which is still a tidy sum by most standards.  But if the million dollars was supposed to last for 20 years, the same cash burn rate means that it will only last for 8 years.  

Lump Sum Settlements For Minors

Lump sum settlements for minors have even more risks.  In most cases, a settlement for a wrongful death has to do with the death of one or more parents.  This money is generally meant to cover the costs of raising the child, helping them get through college, and some additional for the emotional grief and loss. 

There are laws that are supposed to protect minors from abuse of their lump sum settlements.  While laws may punish those who abuse their access to these funds, laws donít replace wrongfully spent money.  When the remaining parent or guardian has complete and unhindered access to a childís settlement, many abuses can occur and the child can quickly be left with nothing. 

Guardians have come up with hundreds of excuses for raiding the lump sum settlement of a minor child under their care:  buying a house, a nice car, eating out, vacations, wages for guardian care, etc.  All of these things are funded for the family under theories that child should not be deprived of living in a family with such niceties.

When confronted with these real life scenarios, it is not hard to see how structured settlements came to be developed.  The fact is that if you donít have it, you cannot spend it, lose it, or be swindled out of it, and you cannot have it stolen from you.

The Periodic Payment Settlement Act

In 1982, Congress passed The Periodic Payment Settlement Act of 1982 (Public Law 97-473), which legally recognized structured settlement cases in physical injury cases, also encouraged people to use them by granting them tax-free status.

This act allowed people to financially benefit and protect themselves from the hazards of a lump sum settlement, and gave courts the ability to make such an award where there was a realistic potential for abuse of the proceeds of a lawsuit.

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