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What Happens to a Structured Settlement if I Die?

It’s not a pleasant thought, but if you have a structured settlement, you may have wondered what would become of those payments if you should head to the Great Beyond. 

The short answer is, it depends on how your settlement was designed.

If your settlement is set up so that it pays only while you, the annuitant, is still alive, then there will be nothing for your beneficiaries if you should make an early exit.   Not surprisingly, this would be the structure of choice for defendants in a personal injury lawsuit, because it ends their liability if the annuitant dies.  However, as you might expect, plaintiffs usually want more flexibility than this.

Another option for a structured settlement is to have the payment stream be fixed over a certain period of time or a certain number of payments.  This may be called a “guaranteed period” or “period certain” because, even if the annuitant should die, the payments continue until the specified period comes to an end.  If the annuitant is no longer alive, the remaining payments go to his/her beneficiary, or his/her estate if no beneficiary has been specified. 

Yet another possibility is to structure the settlement to pay a “joint and survivor benefit.”  In this case, the payments go to the annuitant, but, in the event s/he dies, the remaining payments go to a specified “survivor.”  This would usually be someone like a spouse or child.  Like the guaranteed period, it ensures that the structured settlement will be paid in full, even if the annuitant does not live that long.

Finally, your structured settlement may contain a “commutation rider” which provides for a designated beneficiary to receive a discounted lump sum payment in lieu of the remaining payments if you should die.  Typically, the commutation rider will call for the beneficiary(ies) to get 90% of the remaining settlement if the annuitant dies; this is more than the beneficiary would likely get if s/he sold the payment stream to a structured settlement buyer. 

So, should you sell your structured settlement now in order to make more money for your beneficiaries?  Well, hopefully you and your lawyer had a long conversation about your anticipated needs before you even agreed to the settlement.  But, even so, selling it is a major decision.  If you should die, remaining payments made to your beneficiaries are generally tax-free.  It’s difficult to discipline yourself from spending the entire lump sum if you sell, and any interest you earn on the investment of the funds is taxable – not tax-free, like your structured settlement.

Hopefully, you will enjoy a nice long life with your structured settlement payments.  But take a look at your settlement agreement so that you understand what will happen if you’re no longer around.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

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