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Settlement Money: Lump Sum or Payments?

Personal injury cases are typically settled with either a lump sum payment or a structured settlement. If you’re owed a significant sum of money, it’s important to understand how these options work. There are pros and cons to each approach. The specifics of your case will help you determine which type of settlement fits your needs best.

How Lump Sum Settlements Work

A lump sum settlement is the fastest and simplest way to deal with your money. You will receive your total settlement in one payment. After you cash the check, your case is over, and there’s no continued¬†access or interaction with the defendant. This is usually the best option for small-to-medium amounts. For settlements that are less than $150,000, a lump sum payment is the most common choice.

How Structured Settlements Work

Structured settlements are paid out in a series of smaller payments distributed over time. There are many ways to structure these types of settlements. You will usually get a larger sum in the beginning, followed by smaller amounts paid out monthly, bi-monthly, bi-annually, or annually. However, you can choose to begin with smaller payments that grow gradually or structure the settlement with a brief period of large payments to coincide with a child going to college or another major life event. You will also decide whether payments will continue after your death and go to your heirs for a specified period.

The details of these payments are determined when you settle the case. You cannot change your payments later, so it’s crucial that you think through how and when you will use the money so you have access to the necessary funds when you need them.

Tax Considerations

settlementsThe biggest difference between lump sum and structured settlements is how taxes are handled. If you receive a lump sum payment, you will be responsible for taxes on any dividends you earn on the money. If you invest the money, as you probably should, you will pay taxes as determined by your tax bracket for earned interest.

With a structured settlement, you receive smaller payments that you’re more likely to use immediately. Since you probably won’t be investing this money, you won’t have to pay taxes on it.

Money Management Concerns

When you get a lump sum payment, you have total control over how you manage the money. If you’re financially responsible and investment-savvy, your lump sum payment could grow significantly over time, even with your taxes figured in. However, if you’re not sure how to manage a large sum of money, you might be more comfortable with a structured settlement, which ensures that you have access to a steady stream of money over a longer period.

There are many details to consider when you’re dealing with settlement money. Your attorney can help you explore your options and choose the best plan for your personal needs. This is an important part of handling your case. Give the experienced attorneys at David W. Singer & Associates, P.A. a call at 800-275-3733 (1-800-ASK-FREE) to help you make the best decision.