Long-term financial planning requires a balance between present needs and future goals. As trusted advisors, it is essential to understand the tax-advantaged tools that enable our clients to make informed decisions. Plaintiffs receiving a settlement, individuals involved in the sale of real estate or a business, and attorneys receiving contingency fees can all benefit from structuring their funds.
Structured settlements and structured installment sales offer fixed and market-based options to defer income or settlement funds over time. This deferral of a settlement or sale offers the benefit of reducing taxes while providing guaranteed growth on pre-tax funds. Structured settlements and structured attorney fees have become attractive solutions for attorneys and clients alike.

But First: What is a Structured Settlement?
A structured settlement provides periodic payments as opposed to a single lump sum. It can be funded using an annuity, a market-based structured settlement, or a combination of both. Structured settlements are routinely utilized to compensate individuals receiving personal injury, wrongful death, sexual assault, employment, or civil rights settlements. Structured settlements can also be used in some commercial, dissolution, and probate settlements.
Structured settlements were popularized more than 40 years ago and are codified in the Internal Revenue Code. In 1982, Congress passed the Periodic Payment Settlement Act to encourage the use of structured settlements in physical injury and wrongful death cases. In 1997, Congress extended those tax-free benefits to the workers’ compensation arena with cases involving employees injured or killed on the job. For these qualified cases, structured settlements offer tax-free gains whereas other settlements can provide tax-deferred settlement proceeds.

Benefits of Structured Settlements
1. Guaranteed Income (1)
One of the most significant benefits of structured settlement annuities is that they can provide guaranteed income at a competitive interest rate.
2. Tax Advantages
Structured settlements offer tax advantages. For attorneys and clients receiving a taxable settlement, it allows for spreading receipt of the settlement funds over several years which can minimize tax liability. It also allows for growth on pre-tax dollars. For clients receiving a tax-free settlement, the structured settlement allows for tax-free growth over time.
3. Customizable Payments
Structured settlement annuities offer clients the ability to tailor their payment stream to meet their specific needs. Payments are customized to pay monthly, annually, or in lump sums and can also pay over a set period of time or for one’s entire lifetime.
4. Estate Planning Benefits
Structured settlements offer estate planning benefits. If the client chooses to name a beneficiary for their annuity, the payments will continue to be paid out to that person after their death. Clients can also select joint lifetime payments to ensure their funds last for not only their entire lifetime, but also their spouse’s lifetime as well.
5. Protection Against Inflation
The payments from a structured settlement annuity can be arranged to include an annual cost of living adjustment so that the payments increase each year.

Structured Installment Sales
A structured installment sale allows real estate or business sellers to cash out in a tax-efficient manner without needing to rely on the solvency of the buyer. A buyer facing a high capital gains tax could elect to spread the receipt of sale proceeds over time. By doing so, they not only reduce their overall capital gains taxes, but they also earn interest on pre-tax dollars. The structured installment sale offers many of the same benefits as a taxable structured settlement in terms of long-term financial security and flexibility. The structured installment sale can also be structured through a fixed annuity, U.S. backed treasuries or indexed annuities to capture potential market upside.
The structured installment sale has been especially appealing to retirees who are downsizing, business owners looking to transition and create steady retirement income and children selling an estate who are looking to minimize capital gains taxes. Not all transactions are eligible for a structured installment sale. Sales of inventory, stock or securities, depreciation recapture, and certain other transactions are specifically excluded under IRS Publication 537.

Structured Attorney Fees
For nearly 30 years, plaintiff attorneys have had the ability to defer their contingency fees [See Childs v. Commissioner, 103 T.C. 634 (1994), aff’d without opinion, 89 F3rd 856 (11th Cir. 1996)].
Structured attorney fees are funded with a fixed annuity, a market-based deferral, or a combination of the two options. The structured fees are taxable, but taxes are deferred until the income is received. In the meantime, the fees continue to grow pre-tax. Deferred fees are often used to stabilize income and complement a retirement nest egg. In fact, unlike most retirement vehicles, structured attorney fees are not capped, so plaintiff attorneys can defer unlimited amounts of income.

The Structure Process & Considerations
The ability to structure must be reflected in the settlement release and funded at the time of settlement by the defendant.
The defendant assigns their obligation to make future payments to a third-party assignment company, who then directs the funds to the chosen financial institution(s). Due to the assignment of future payments, the structured settlement or fee deferral doesn’t rely on the credit-worthiness of the defendant.
With a structured installment sale, the parties typically engage a settlement consultant to assist with an addendum to the sales contract and a nonqualified assignment agreement. With structured installment sales, it is helpful to communicate a desire to enter into a structure at the onset of the transaction. It is important that the buyer fund the structured installment sale directly and that the seller not come into constructive receipt of the funds.

(1) Guarantees are subject to the claims-paying abilities of the issuing insurance company. Market-based deferrals are also subject to the performance of the selected market investments.
Contact Us
Structuring proceeds from a settlement or business sale can be the key to lasting financial security. Likewise, structuring attorney contingency fees can provide a stable source of long-term income. At Sage Settlement Consulting, we offer comprehensive services and competitive options for your structured settlement, structured attorney fee, and structured sales needs. Contact us today to learn more.