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A structured settlement converts part of a personal injury recovery into a stream of periodic payments funded by an annuity contract. The payments are excluded from federal income tax under IRC § 130 if structured at the time of settlement. Structures make sense for catastrophic-injury cases with long-term medical needs, for clients who would otherwise face creditor pressure or means-tested-benefit disqualification, and for cases where the after-tax math favors periodic over lump-sum.
The tax benefit only attaches if the structure is created at the time of settlement, in the settlement agreement itself. Converting a lump-sum to an annuity after settlement does not get the IRC § 130 treatment — the post-settlement annuity income is taxable.
Structures are not always the right choice. They lock in payments and can underperform alternative investment strategies if interest rates rise. They require trust in the issuing insurance company over decades. And they reduce flexibility — if the plaintiff's circumstances change dramatically, the structure can't easily be reshaped.
William Pereira's tax-attorney background means we run the actual after-tax comparison rather than relying on structured-settlement broker pitches. Most personal injury firms either default to lump sums or default to structures; we model the trade-off case by case.
This answer is general legal information, not specific legal advice. Pereira & Associates can review your particular facts in the free consultation. Schedule one →
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