Structured Settlements Structured Settlement Basics 1

Question 1

What is a structured settlement?

Accepted Answer

A series of periodic payments made to a claimant over time as part of a legal settlement

Answer

A structured settlement is an arrangement in which a defendant agrees to make periodic payments to a plaintiff over a set period instead of a single lump sum.

Question 2

Which federal law governs the tax treatment of structured settlement payments?

Accepted Answer

The Periodic Payment Settlement Act of 1982

Answer

The Periodic Payment Settlement Act of 1982 established the federal tax framework for structured settlements, codified under IRC §104(a)(2).

Question 3

Which IRC section exempts personal physical injury structured settlement payments from federal income tax?

Accepted Answer

IRC §104(a)(2)

Answer

IRC §104(a)(2) excludes from gross income damages received on account of personal physical injuries or physical sickness, including structured settlement payments.

Question 4

What entity typically funds the periodic payments in a structured settlement?

Accepted Answer

A life insurance company through an annuity contract

Answer

A life insurance company issues an annuity contract that funds the periodic payments guaranteed under the structured settlement.

Question 5

Which party is typically referred to as the 'claimant' in a structured settlement?

Accepted Answer

The injured plaintiff receiving payments

Answer

The claimant is the injured party (plaintiff) who receives the periodic payments agreed upon in the structured settlement.

Structured Settlements Practice Test

Structured Settlements Practice Test

Structured Settlements Structured Settlement Basics 1