Litigation

What are the Disadvantages of a Structured Settlement?

Spray Gould Bowers, LLP

If the plaintiff retains too much control over the proceeds, the IRS may look at the situation and decide that the tax benefit must be forfeited.

Comment

Huh?  With a structured settlement the plaintiff chooses to take a portion of his or her recovery in the form of periodic payments. The terms of the structured settlement preclude any ability to increase, decrease, modify, encumber etc etc.

Spray Gould Bowers, LLP

The plaintiff may fear that, no matter how the settlement protects against adverse economic conditions such as inflation or recession, unknown changes in the economy could make the annuity payments too small.

Comment

The annuity payments may stay the same BUT they do not shrink. They may increase if a COLA is included in the settlement plan design. Changes in the economy do not make the payment small.

Spray Gould Bowers, LLP

Sometimes, the annuity is placed with brokers who do not have sufficient protection for insolvency.

Comment

Find me a structured settlement broker that has an insurance policy that covers insolvencies. To the best of my knowledge polices exclude it. Some crafty legal maven could probably find a way to tap it .

Spray Gould Bowers, LLP

Insurance companies are reluctant to disclose how much they will have to pay to buy an annuity covering the amount of the settlement. A structured settlement frequently costs the insurer much less than it would to make a lump-sum settlement. The problem with this is that the plaintiff's attorney may not be able to make a complete assessment of the merits of the settlement offer.

Comment

1. Old and inaccurate information
2. Many states have statutes that require a cost disclosure (among other disclosures) by the defendant or defendant's legal representative when a structured settlement is created.
3. Hiring your own settlement planner will assure you have accurate cost information as well as enable the plaintiff attorney to "make a complete assessment of the offer".
4. In most cases the structured settlement cost together with up front cash is the same cost as a lump sum settlement. In other words the parties often negotiate to a figure, or close to a figure and then decide on an allocation which may include a structure.

While it is always nice to see a law firm write something about structured settlements Spray Gould Bowers' analysis is incomplete and would be far more useful if it was updated.