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What is a structured settlement?

Typically, when a personal injury case settles, the injured party receives a lump sum payment of their settlement funds. However, this is not the only option.

A structured settlement is an arrangement of settlement funds into scheduled payments over time. Each payment is tax-free. The core idea behind structured settlements is making the settlement funds last to ensure the injured party’s needs are met going forward. Often, when the settlement amount is large and the effects of the injuries are expected to be permanent, the scheduled payments will be set to last the injured person’s lifetime. However, there are different schedule options to meet an individual’s needs.

Why choose a structured settlement?

There are various reasons to opt for a structured settlement. The most popular are:

  1. Certainty
    It provides a guaranteed payment in accordance with the schedule. This makes it easier to plan your finances around your expected income. Investing your full settlement amount outside of a structured settlement could result in taxes or losses depending on the market.
  2. Tax free
    While some other investment options are also tax-free (ex: tax free savings account), many investments will be subject to tax. Structured settlements remain tax free throughout their lifetime.
  3. Peace of mind
    Payments under a structured settlement are not subject to market fluctuations. You will know your payments.
  4. Prevents recipient from spending settlement funds too quickly
    Settlements for serious and permanent injuries often include significant amounts of money intended for future care costs, such as treatment and medications, in addition to payments for loss of housekeeping capacity and loss of future income. If you receive your settlement in a lump sum, the burden falls on you to plan your finances for years to come. It can be tempting to overspend on things in the short-term if you have access to your settlement in a lump sum. Structured settlements prevent this overspending from happening, which can protect your future interests.

If these benefits interest you, read this guide written by McKellar Structured Settlements for more information.

Why you might not choose a structured settlement

Everyone’s circumstances are different, and therefore, these plans are not the best option for everyone. Some reasons for not taking a structured settlement include:

  1. Lack of liquidity
    A structured settlement puts your settlement funds into an account and pays out based on a pre-determined schedule. Inherent in this concept is the lack of liquidity of your funds, in other words, you do not have access to the full pot, only the amounts that get paid out each period, usually monthly.
  2. Rigidity of structured settlement payment schedules
    Once the payment schedule is set, it can be very difficult to change. This means that if later, you decide that the payment you’ve been receiving is not enough, you may not be able to increase the payments, even though the money is yours. Because of this, planning upfront is very important.
  3. Inflation
    If you do not account for inflation when determining your payment schedule, your payments will stay the same over time while the cost of living inevitably rises. The amount of upfront planning required to ensure your funds are serving you in the best way possible cannot be understated.

An experienced personal injury lawyer can help you determine the best route for your settlement funds. Contact us today for your free consultation.


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MacGillivray Law is a personal injury law firm with offices in Nova Scotia, New Brunswick, and Newfoundland and Labrador. We serve clients all across Canada.

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