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70 A.B.A. J. 67 (1984)
Negotiating a Structured Settlement

handle is hein.journals/abaj70 and id is 699 raw text is: Negotiating a Structured Settlement By Brent B. Danninger, Robert W. Johnson- and Paul I. Lesti WHEN airplanes crash, hotels collapse and surgeons err, the first settlement proposal likely will be a struatured set- tlement, which has taken the personal injury practice by storm. In 1979 no more than 3,000 cases were resolved in structured settlements, but in 1983 more than 15,000 cases were concluded with them. Defendants spent approximately $1.5 billion on premiums in 1983 to pur- chase these settlements. A structured settlement is a promise to pay a series of future payments in lieu of a lump-sum settlement today. For example, instead of $110,000 paid now, a settlement could be structured so that the plaintiff will receive $1,000 per month for life. When properly con- structed, structured settlement pay- ments are tax free to the recipient. The primary advantage of a structured settlement is secure, tax-free income for the recipient's lifetime. The recipient also does not have to assume the costs and risks of managing an investment portfolio and will be prevented from pre- maturely dissipating the settlement funds. The major disadvantage is that once there is agreement on a payout sched- ule, that schedule is fixed. This can have ill effects in situations in which future medical or other expenses are not antici- pated correctly by the fixed payment schedule. How they're structured The structured settlement should provide enough cash at settlement to pay attorney's fees, accrued medical bills and other similar debts. Most plaintiffs also expect some cash at settlement, and most structured settlements also contain a monthly stipend to augment or replace lost wage income. Plaintiffs typically receive from a few hundred to several thousand dollars per month for life. These payments usually continue for life, as opposed to ending at age 65. Pay- ments for a married recipient may be designed to last for the lifetime of the longer surviving spouse. Structured settlements also can provide single-sum amounts at specified times. This feature can be used to provide a college fund, but account must be taken of the fact that an education becomes more expensive each year. For example, the cost for a year at Harvard is expected to rise from $15,035 in 1983 to $32,459 by 1993, assuming an 8 per- cent annual increase in college costs. Future medical and rehabilitative May 1984 e Volume 70 67 '111111 1 M IN ! q :,-,I: ne.

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