The outcome of a successful lawsuit for negligence can be a judgement in favor of the complainant, a judgement in favor of the defendant, or a settlement between the two parties. In cases where a settlement is reached, the defendant agrees to pay an amount that is less than the amount the plaintiff had originally sought. In terms of paying that settlement, there are two options: The plaintiff can either opt to receive it in one lump sum or in installment payments. The second option is known as a structured settlement.
Structured settlements don’t all look the same. The payments structure can range in complexity from a simple, once-yearly payment to much more complicated incarnations. For example, it is possible to have some of the settlement paid in a lump sum upfront and then have the remaining balance paid in a variety of installment options. These can include deferred payments and indexed payments. Typically, a complainant will purchase an annuity from an insurance company or annuity company. That annuity provides the payout to the complainant in accordance with the terms of the settlement agreement.
Opting for a structured settlement offers many benefits to the complainant as compared to a one-time payment. The annuity will guarantee a continuous income stream whereas with a lump-sum payment once the money is gone, it’s gone. In other words, a structured settlement may be a better option for those who may otherwise struggle to effectively budget the settlement amount if it is paid all at once. The decision whether to opt for a structured settlement or a one-time payment depends largely upon the payee’s money-management personality. A structured settlement can be an effective way to ensure the payee has a recurring income stream into the future.
Further, a structured settlement offers the payee some benefits at tax time. Recipients of a structured settlement may be able to reduce the amount of taxes they pay because they would not be subject to tax on investment income such as would be levied on a large one-time payment.
There is a downside to a structured settlement, however. It is important to realize that the terms of the settlement are concrete. They cannot be changed later. Because of the finality of the terms of the settlement, it is imperative to get advice from a knowledgeable lawyer and tax expert. They can offer advice that will pertain to each particular case and negotiate settlement terms that can will best suit the situation.
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