Structured Settlements in the United States

A structured settlement is a financial or insurance arrangement, including periodic payments, that a

claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment

obligation. Structured settlements were first utilized in Canada and the United States during the 1970s

as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law

of several common law countries including: Australia, Canada, England and the United States. Although

some uniformity exists, each of these countries has its own definitions, rules and standards for

structured settlement. Structured settlements may include income tax and spendthrift requirements as

well as benefits. Structured settlement payments are sometimes called “periodic payments”. A structured

settlement incorporated into a trial judgment is called a “periodic payment judgment”.



Structured Settlements in the United States
The United States has enacted structured settlement laws and regulations at both the federal and state

levels. Federal structured settlement laws include sections of the Federal Internal Revenue Code. State

structured settlement laws include structured settlement protection statutes and periodic payment of

judgment statutes. Medicaid and Medicare laws and regulations impact structured settlements. To preserve

a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into

“Medicare Set Aside Arrangements” the “Special Needs Trusts”.

Injury victims should know that structured settlements are endorsed by many of the nation's largest

disability rights organizations, including the American Association of People with Disabilities [1] and

the National Organization on Disability [2].


Definitions
The United States definition of “structured settlement” for Federal income taxation purposes, found in

Internal Revenue Code Section 5891(c)(1), is an "arrangement" that meets the following requirements:

A structured settlement must be established by:
A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue

Code Section 104(a)(2); or
An agreement for the periodic payment of compensation under any workers’ compensation law excludable

under Internal Revenue Code Section 104(a)(1); and
The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal

Revenue Code Section 130(c)(2) and must be payable by a person who:
Is a party to the suit or agreement or to a workers' compensation claim; or
By a person who has assumed the liability for such periodic payments under a Qualified Assignment in

accordance with Internal Revenue Code Section 130.