The United States has taken steps to legislate structured settlements on both the state and federal levels. The Internal Revenue Service regulates the taxation laws in its Internal Revenue Code. State laws usually control the periodic payment structures in the judgment. Medicaid and Medicare also affect the dispersing of funds in a structured settlement. Often where Medicaid and Medicare are involved structured settlement payments are incorporated into what are referred to as ‘Medicare Set Aside Arrangements’ or ‘Special Needs Trusts.’
Typically a structured settlement is set-up as follows; An injured party (the plaintiff) settles a dispute with the defendant and or its insurance carrier for car accident compensation as an example. Like the lawyer in your town who says he’ll sue the insurance company for you. The defendant agrees that rather than a lawsuit they will pay you a specified amount of money. This specified amount is paid out over time in one of several ways. Basically they find some sort of long term pay structure where they know they will continue to receive payments. Ironically one of the most common assets to fund a structured settlement is a life insurance policy, or series of policies. They are high yield and create a constant income flow, so if you sue your neighbor for running over your cat and you settle for $20,000 – there is a good chance his brother’s life insurance payments are funding your settlement.