by John Darer CLU ChFC MSSC RSP CLTC
Accepting your settlement in a structured settlement bolsters your finances via stable income payments.
Structured settlements are free of ongoing investment management, portfolio management or wrap account fees and enjoy tax free status pursuant to IRC Section 130(c) and the tax exemption provided in 104(a)(1) or 104(a)(2) of the Internal Revenue Code.
While some people like to receive a portion of their structured settlement payments for life, others have different ideas and needs which might be addressed with period certain structured settlement payments, deferred lump sum structured settlement payments, increasing payments, variable structured settlement payments and many other possible combinations.
If you or your client is the type of person, who doesn't need lifetime income and would be interested in a tax-free municipal bond or treasury bond and are being advised to follow a "laddered bond" strategy, consider that a structured settlement can be designed to simulate any kind of bond held to maturity by creatively utilizing multiple payment streams. By pairing a period certain payment with a guaranteed lump sum payment matched respectively to the bond duration and maturity date, we can accomplish something like a bond ladder in many aspects except that the annuities are not traded on the open market. If you compare the yields earned on the laddered bond strategy, from your favorite stockbroker to the yields offered by designing a "structured settlement bond simulation" ladder you will find the structured settlement yields to be highly competitive. The strategy works for all types of plaintiffs and all levels of sophistication.
Some could argue that the real bonds are readily marketable and thus hold an advantage. But consider that if you were really desperate to "cash out", with Court approval you could sell your structured settlement payment rights to a factoring or transfer company. The fee for doing so (discount rate to calculate the lump sum) is quite a bit more conceptually than the penalty for breaking a CD and I probably wouldn't recommend it but at least you know it's there. A competent structured settlement planner and/or other advisers that you are working with should be able to advise you on issues such as having a reserve and budgeting so that you don't fall into the desperation hole.