Wednesday, August 5, 2009
The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the (federal) Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations affect structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” “Special Needs Trusts."
Structured settlements have been endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities and the National Organization on Disability .
In April 2009, financial writer Suze Orman wrote in a column that structured settlements "provide ongoing income and reduce the risk of blowing a lump sum through poor financial choices." In response to a reader's question, she added that financial security can be improved "if you use the structured payouts wisely."
The United States definition of “structured settlement” for federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1) (26 U.S.C. ), is an "arrangement" that meets the following requirements:
- A structured settlement must be established by:
- A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. ); or
- An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. ); and
- The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C.) and must be payable by a person who:
- Is a party to the suit or agreement or to a workers' compensation claim; or
- By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. ).