Structured Settlement Basics Flashcards
6 cards from real Structured Settlements practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Structured Settlement Basics flashcards as text
What is a structured settlement?
Answer: A series of periodic payments made to a claimant over time as part of a legal settlement
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.
Which federal law governs the tax treatment of structured settlement payments?
Answer: The Periodic Payment Settlement Act of 1982
The Periodic Payment Settlement Act of 1982 established the federal tax framework for structured settlements, codified under IRC §104(a)(2).
Which IRC section exempts personal physical injury structured settlement payments from federal income tax?
Answer: IRC §104(a)(2)
IRC §104(a)(2) excludes from gross income damages received on account of personal physical injuries or physical sickness, including structured settlement payments.
What entity typically funds the periodic payments in a structured settlement?
Answer: A life insurance company through an annuity contract
A life insurance company issues an annuity contract that funds the periodic payments guaranteed under the structured settlement.
Which party is typically referred to as the 'claimant' in a structured settlement?
Answer: The injured plaintiff receiving payments
The claimant is the injured party (plaintiff) who receives the periodic payments agreed upon in the structured settlement.
What is the primary advantage of a structured settlement over a lump-sum payment for a physical injury claimant in the US?
Answer: All periodic payments are income-tax-free under IRC §104
Under IRC §104(a)(2), all periodic payments from a properly structured personal physical injury settlement are excluded from federal income tax.