Structured settlements are designed to provide long-term financial security for recipients, typically those who have suffered personal injuries or other losses. However, life circumstances can change, and recipients may find themselves wondering if their structured settlement can be modified. This article will explore the possibilities, limitations, and considerations involved in changing a structured settlement.
Understanding structured settlements
These payments are usually funded through an annuity purchased by the defendant or their insurance company. Structured settlements are commonly used in cases involving:
- Personal injury claims
- Workers’ compensation
- Medical malpractice
- Wrongful death suits
The legal framework
The ability to change a structured settlement is governed by both federal and state laws:
- Federal law: The Periodic Payment Settlement Act of 1982 established the tax treatment of structured settlements. This law doesn’t directly address changes to settlements but sets the foundation for their treatment.
- State laws: Most states have enacted structured settlement protection acts (SSPAs) that regulate changes to structured settlements, particularly the sale of settlement payments.
Can a structured settlement be changed?
The short answer is: In most cases, the terms of a structured settlement cannot be easily changed once it’s established. However, there are some exceptions and alternatives to consider.
- Contractual limitations: Structured settlements are typically set up as irrevocable agreements. This means that once the terms are established and agreed upon by all parties, they cannot be altered without the consent of everyone involved. This irrevocability is part of what allows structured settlements to maintain their favorable tax treatment.
- Selling structured settlement payments: While the terms of the settlement itself usually can’t be changed, many states allow recipients to sell some or all of their future payments for a lump sum. This process is often referred to as “factoring” and is subject to strict regulations:
- Court approval: Most states require court approval for any sale of structured settlement payments.
- Best interest standard: The court must determine that the sale is in the best interest of the seller and their dependents.
- Disclosure requirements: The factoring company must provide clear disclosures about the terms of the sale.
- Hardship clauses: Some structured settlements include hardship clauses that allow for changes under specific circumstances. These are rare and typically only apply in cases of severe financial hardship or drastically changed life circumstances.
- Commutation riders: A commutation rider is a provision that can be included in a structured settlement agreement allowing the recipient to receive a portion of their future payments as a lump sum under certain conditions. This is not a change to the settlement itself but a pre-planned option for flexibility.
Pros and cons of changing a structured settlement
Advantages of maintaining the original settlement:
- Tax benefits: Payments from qualified structured settlements are tax-free.
- Financial security: Guaranteed income stream over time.
- Protection from creditors: In many cases, structured settlement payments are protected from creditors.
Disadvantages of changing the settlement:
- Reduced total payout: Selling payments often results in receiving less than the full value.
- Tax implications: Lump sums from selling payments may be taxable.
- Loss of long-term security: Giving up future payments can impact long-term financial stability.
Legal considerations
The restrictions on changing structured settlements exist for several reasons:
- Protecting vulnerable individuals: Many settlement recipients have suffered injuries or losses that may impact their decision-making.
- Preserving long-term financial security: Structured settlements are designed to provide stable, long-term support.
- Preventing exploitation: Regulations aim to prevent predatory practices by factoring companies.
The takeaway
While structured settlements are generally designed to be unchangeable, there are circumstances under which recipients can access their funds differently, primarily through selling future payments. However, this process is heavily regulated and requires careful consideration.
The decision to alter a structured settlement should not be taken lightly. It involves weighing immediate financial needs against long-term security, considering tax implications, and navigating complex legal requirements.
Ultimately, the ability to change a structured settlement is limited, but not impossible. With careful consideration and proper guidance, you can make informed decisions about whether and how to pursue changes to their settlement arrangements.
Let Peachtree help
At Peachtree Financial Solutions, we’ve helped thousands of people get their money sooner by purchasing their future payments for a lump sum of cash. Selling your payments is a regulated process and we have a lot of experience with these transactions. And while every structured settlement is unique, which means every payment sale will be different, they all have the same basic six steps:
- Call one of our representatives.
- Receive a free, no-obligation quote for the sale of your payments.
- Review and sign the purchase agreement.
- We process the agreement with your insurance company and local court.
- A judge reviews the transaction and, if approved.
- You get your cash!
Why should you choose Peachtree?
It’s all part of something we call the Peachtree Promise: our experienced, dedicated representatives listen to your goals and clearly explain your available options. We meet you where you are without judgement and work hard to help you meet your financial goals. Getting your quote is completely free, and you’re under no obligation to sell to us if you aren’t completely satisfied with what you hear.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
