When it comes to structured settlements, understanding the advantages and disadvantages of transferring or selling them is essential for making an informed decision. A structured settlement is a financial arrangement in which a claimant receives periodic payments from a defendant, usually as part of a legal settlement. The payments are made over a specified period of time, and they may be made in lump sums or spread out over several years. While structured settlements offer many benefits, there are some downsides to consider when it comes to transferring or selling them. In this article, we will look at the potential disadvantages of transferring or selling a structured settlement, and discuss how to weigh the pros and cons when making a decision.
Read on to learn more about the risks involved in transferring or selling a structured settlement. The primary disadvantage of selling a structured settlement is the potential loss of future income. When a person sells their structured settlement, they are exchanging their right to receive future payments for a lump sum payment. While this lump sum may provide immediate financial relief, it is also a one-time payment that cannot be replaced if the individual later finds themselves in need of additional funds. Another potential drawback is the cost associated with transferring or selling a structured settlement.
In order to receive the lump sum, the individual must pay fees to the company that is purchasing their future payments. These fees vary, but can be significant and should be taken into consideration when evaluating whether or not to sell a structured settlement. While these fees are typically well-disclosed, they can still take away from the amount of money an individual receives from the sale of their structured settlement. In addition to the cost of selling a structured settlement, there are also potential tax implications. Depending on the type of structured settlement held by an individual, the lump sum payment received may be subject to taxation.
This can further reduce the amount of money an individual receives from the sale of their structured settlement and should be taken into consideration when deciding whether or not to go through with the sale. Finally, transferring or selling a structured settlement can also affect an individual’s eligibility for certain government benefits. Depending on the amount of money received from the sale and other factors, such as income level and assets held, an individual may no longer qualify for certain benefits once the structured settlement is sold. Overall, while there are many advantages to selling a structured settlement, there are also some potential drawbacks that should be taken into consideration. Understanding all of the potential costs and implications associated with transferring or selling a structured settlement can help an individual make an informed decision about whether or not to proceed with the sale.
Tax ImplicationsWhen selling a structured settlement, the individual must also consider the potential tax implications. Depending on the state in which the individual resides, they may be liable for taxes on any lump sum payments they receive.
Additionally, if the money is not used for “qualified” expenses (i.e. medical bills), they may be required to pay taxes on those funds as well. Selling a structured settlement can provide individuals with immediate financial relief, but there are potential drawbacks that must be considered before making such a decision. Tax implications can be an issue, as any money received from the sale of the settlement will be considered taxable income. Additionally, there may be fees associated with the sale and transfer process.
It is important to understand all of the implications before entering into any agreement and to ensure that it is the right decision for your individual needs.