The rate of return has always been a major concern for structured settlements owners, their financial advisers, lawyers, and representatives because they feel their money can grow faster if they put it on other forms of investment. The fact that structured settlement payments are totally free of any Federal, State or City income taxation as per IRC Sec 104(a)(1) and 104(a)(2) does not dissipate their feeling that if they receive their money lump sum and invest it somewhere else they may still be able to make more money even if it will be subjected to taxes.
Let us consider how investing the money somewhere else may allow the recipient better returns. Any income generated by investment of a large cash lump sum settlement would likely subject the plaintiff to a higher tax bracket. If you take into consideration federal and state taxes and your own tax brackets, you will have to earn 20% to 40% greater rates each year for the rest of your life or the number of years equivalent to the length of your structured settlement just as so you could earn a net profit that would equal your structured settlement payment.
If you put your money on stocks, for example, remember that the market is now more volatile than it was five years ago because of the economic crash. You may earn but there is still a chance for your funds to dissipate. There are other forms of investments that may be considered safe such as U.S. Treasuries, Municipal Bonds, Corporate Bonds but remember that this will already be subjected to taxes. If anyone claims they can guarantee that you will still be tax free even if you invest on stocks and other options that offer better liquidity, that’s most likely bogus.
If you are looking to be more liquid without being taxed, one option is to use structured settlement with settlement preservation trust, settlement conservation trust, or a special needs trust. We have also discussed how structured annuity backstop may be used to make yourself more liquid.
There is the alternative of variable payout structured settlement annuities. This will allow the structured settlement recipient to get into the financial market with no taxes. However, this may only be sold by structured settlement brokers who are legally registered and licensed to sell variable annuities.
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