Litigation

What some structured settlement consultants and others refer to as a cost of living adjustment or COLA today is really a fixed escalator such as 2%, 3%, 4% or more.  I'd like you to have a better understanding of it. The "COLA" is not really a cost of living adjustment because there is no fixed link to a variable index such as the CPI, or the actual cost of living. By adding a "COLA" to your structured settlement you give up structured settlement payments today with an eye to ultimately have more payments in the future.

These fixed increases are predetermined at the settlement of the case, when the structured settlement is created and are "fixed and determinable as to amount and time of payment...can't "increase, decrease, accelerate or defer"... etc...(unless a court later approves that selling your payment rights is in your best interest).

I'm not saying you should not consider your options, I'm simply saying:

 Don't drink the "COLA-Aid"

NOTE:

• If the "COLA" is applied to a structured settlement which represents payment for damages for personal physical injury,physical sickness, or workers compensation,-the COLA adjusted payments are income tax free under IRC 104(a)(1) or 104(a)(2)
• If the "COLA" is applied to a structured attorney fee, where the entire amount of each payment received by the attorney is taxable, THEN obviously the incremental benefit represented by the "COLA increase factor" IS also taxable.
• Similarly, if there is a component of damages that is taxable such as punitives, wrongful termination, environmental, or the portion of a settlement allocated to pre-judgment interest, THEN the incremental benefit represented by the "COLA" applied to any periodic payment solution IS also taxable
• Where the "COLA" is applied to a non qualified assignment (often called "tax deferred structured settlement") where taxable damages are the order of the day, THEN obviously the incremental benefit represented by the "COLA" applied to any periodic payment solution IS also taxable