If there is no settlement, then the pre-settlement legal funding loan does not have to be repaid.
Such funding options have proven a godsend for many plaintiffs who would not be in a position financially to wait out their case until it settles. That said, once your case does settle there are various other funding options that make a lot of sense in order to maximize your settlement funds and your financial needs.
One of those options is structured settlement funding. However, we first have to understand what a structured settlement is.
Let’s say you have $500,000 coming to you as the result of a settlement when your case concludes. This assumes that all legal fees and costs and potential presettlement funding have been discharged. You’re left with a half-million dollars. Congratulations. You should know that your money, as compensation for an injury, comes to you tax-free.
And as long as you keep that money as cash, it remains tax-free. Keep it in your mattress and you’ll never have to pay a dime of income tax on it.
However, most Americans don’t keep cash in their mattresses. Especially such a large amount. Instead, you’ll want to invest it. Make a few bucks worth of interest. Have some set aside for a rainy day.
As soon as you invest your tax-free injury compensation funds, you are taxed on it.
How do you avoid that?
With a structured settlement.
What this is, basically, is an annuity that is purchased in the amount of your settlement and paid out to you over a period of time. This has several advantages, and little wonder why many plaintiffs opt for this. First, you’re not taxed. Payments from an annuity based on a tax-free compensation is equally tax-free. Second, you resist the temptation to blow all the money on vehicles, a new house and buying endless rounds for your friends at the local pub. You’d be amazed at how quickly you can go through a half-million bucks if you’re not careful.
You can even defer payments for a period of years, which equates your compensation settlement to a handy retirement fund. You can take part of your settlement in cash, and put the rest into a structured settlement. Bear in mind, however, that the cash you hold back from the structured settlement will be taxed if you plan to invest it in any other type of investment other than an annuity. That said, if you wanted to hold back $40,000 to buy that new truck, there is no tax on that $40,000 as you are using it as cash.
Okay, so you have your structured settlement and receiving payments going forward, and everything is just tickety-boo. Or is it? Perhaps the structured settlement made sense at the time, but…
There’s always a “but,” isn’t there?
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That’s where structured settlement funding comes in. Since an annuity is not owned by you in the first place, you can’t really sell it. But you can divert the payments you would normally receive and assign them to a structured settlement funding provider, which in turn will pay you a lump sum representing a period of time that your payments would amount to and/or the remaining amount of your settlement in value.
In this way, you’re in a position to access funding now in order to fund the start-up of a business, put your kid through university or for any number of financial needs you didn’t anticipate when the structured settlement was originally devised.
This is when structured settlement funding truly answers the call…