Structuring Taxable Settlements
Failing to use periodic payments in a taxable
settlement may produce an even worse tax outcome than in a tax-free
case.
EMPLOYMENT * SEXUAL HARRASSMENT * PUNITIVE DAMAGES
EXAMPLE
| $600,000 Settlement* |
TAXES |
SAVINGS |
NET |
| Taken as a lump sum, 39% tax bracket |
$210,268 |
$ -0- |
$389,732 |
| Payable at $138,518 per year for 5 years, 31% tax bracket |
170,308 |
39,960 |
732,550
|
| Payable at $95,341 per year for 8 years, 28% tax bracket |
167,960 |
42,307 |
805,038 |
*Without consideration to additional income and using 2000 Federal Income Tax rates, filing "Jointly or Surviving Spouse".
PERIODIC PAYMENTS FOR
104 (a)(3) DISABILITY INCOME POLCICY CLAIMS
(Tax-exempt when premiums are paid by the claimant)
A Disability Structured Settlement benefits both the insurer and the claimant. It is
appropriate to consider a Structured Settlement when:
- The claimant has no interest in vocational rehab or return to work programs.
- The claimant is permanently disabled and has no hope of returning to work.
- There is unclear or multiple medical prognosis for the long term.
- There is disputed medical treatment or disputed claim.
- Policy limits will definitely be reached.
ADVANTAGES TO THE CLAIMANT
Freedom to negotiate and restructure the benefits to suite their lifestyle. The
benefits can be tailored to meet a variety of financial needs, such as
supplementing retirement income, providing a college funds for children, starting a
business, or paying off debts. There is no need to adhere to the level and
frequency of payments available under the disability policy. Claimants are free to
go back to work without jeopardizing their payments.
Guaranteed benefits for claimants and their family. The benefits can be extended
for the claimant's lifetime instead of ending at age 65. A guarantee period can
protect beneficiaries and provide greater peace of mind.
Assured payments. Issued by highly rated insurance companies with medical
underwriting available to leverage benefit payouts.
ADVANTAGES TO THE DISABILITY INSURER
Disability claims present a unique problem to any insurer: how to manage the
complicated issues that arise form a long term disability claim, and still maintain
profitability when the cost of providing these benefits increases over time.
Reduce claims reserves. Shifts the risk and reserves to another entity with strong
financial strength.
Reduce administrative costs. By settling the disability claim, the expense and
time required to administer payments is eliminated, as well as the case load for
adjusters.
Pass on the investment and reinvestment risk. Structured settlements can
eliminate the risk of changes in investments or interest rates.
THE BENEFITS OF USING STRUCTURED SETTLEMENTS FOR ENVIRONMENTAL CLEANUP*
A structured settlement meets the needs of many companies facing an
environmental cleanup challenge. A structured settlement can remove accounting
and financial reporting requirements, improve investor relations and image, and
allow for a current tax deduction of future cleanup costs.
Structured settlements helps the company avoid having to disclose environmental
cleanup liabilities which are required under accounting and Securities and
Exchange Commission (SEC) regulations. When future contingent liabilities are
removed, no further disclosure is necessary. The avoidance of any negative
impressions of environmental claims improves investor relations and corporate
image.
The company can obtain a current tax deduction for future environmental cleanup
costs when making a payment into a Qualified Settlement Fund which funds the
cost of future cleanup.
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