Periodic Payment Settlement Act

periodic payment settlement actIn 1982, then US President Ronald Reagan signed into law the Periodic Payment Settlement Act and it is enshrined in the Internal Revenue Service Code. This law serves to promote the use of structured settlements as the process of providing long-term tax free finances to those victims that have been awarded compensation for the injuries and/or damage sustained.

The law’s main provision is to exempt from tax liability any monies received as compensation for physical injuries, illness and other workman’s compensation cases. These amounts would be included in the gross income of the individual’s tax return, be it a lump sum amount or an installment scheme over a given period of time.

The law also does not differentiate as to who pays out and its method of payment. Regardless of whether a third party, such as an insurance company, the law would assume the obligation to pay the recipient of the adjudged compensation as any person recognized by the court and the agreement.

By the enactment of the Periodic Payment Settlement Act, structured settlements have become endowed with distinct advantages and benefits compared to what a lump sum payment would provide the damaged party. The main residual benefit is the tax free status of the principal amounts paid but also the interest earned from these payments made.

The main drawback though is that these structured settlements could not be altered or modified into an ‘accelerated, deferred, increased or decreased by the recipient’. This means that the said structured settlement agreement would be set in stone and any changes instituted would result in the both the removal of the tax free status of the agreement.

Overall, the law is designed to protect the recipient of the structured settlement in the long run from unscrupulous firms seeking to take advantage of those receiving these kinds of amounts.

The Basics of Structured Settlements Involving Minors

Before structured settlements were properly organized, most often minors or their guardians receive a lump sum amount because the minor’s parents were the injured parties and are unable to continue with their parental duties. Too often, these guardians have unfettered discretion in the use of the funds supposedly in behalf of their wards, resulting in dissipation of the amount often for unrelated expenditures outside what the courts have prescribed.

It is for this reason that laws concerning minors and structured settlements were put in place. The purpose was to protect the beneficiary in purchasing items using compensation for injuries sustained for the necessities of the child. These necessities include food, clothing, shelter, education and any continuing medical care.

The law provides for control by the minor children, as set forth in the law, over the payouts indicated in the structured settlements. It is mandated in both state and federal laws that courts with jurisdiction over the case have the direct responsibility to determine the fairness of the amounts as well as the administration of the awarded funds.

The difference from common structured settlement agreements is the beneficiary in this instance is a minor or a person below 18 years of age or that of unsound mind. If the child comes into majority during the life of the annuity, then the guardian’s role is removed. On the other hand, if the beneficiary is a perpetual child, or without the ability to decide at any age, then the structured settlement continues on with a guardian in place.

The common actions for cases where there are minors and structured settlements include the creation of trust funds as well as institution of guardianship accounts. Now, the use of structured settlement annuities has become one of the common preferred methods for the preservation of the financial security of the child. This, together with the tax free status of these agreements as well as flexibility in payouts require more laws to assure the protection of the minor beneficiary’s welfare in the long run.

For more law related information read about protection act for structured settlements.

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