In Nevada, a “structured settlement” is an amount paid to a personal injury plaintiff over a period of time, rather than all at once. Lump-sum payments are the most common form of settlement in a Nevada injury case. But under certain circumstances -- particularly when the dollar amount of the settlement is very high -- the defendant may offer a structured settlement.
In most cases, plaintiffs prefer lump-sum payments to structured settlements. However, a structured settlement can be advantageous when:
- The plaintiff is very young or unable to manage his or her own finances,
- There are tax advantages to deferring all or part of the money, or
- The defendant offers a larger sum of money if paid over time.
To help you better understand how structured settlements work in a Nevada injury case, our Las Vegas personal injury lawyers discuss the following, below:
- 1. What is a structured settlement?
- 2. When is a structured settlement used?
- 3. How does a structured settlement work in a Nevada injury case?
- 4. Advantages to a structured settlement
- 5. How do I protect payments under a structured settlement?
Most Nevada personal injury cases settle out-of-court. These settlements can take several forms (or a combination of forms), including:
- The defendant pays the plaintiff a lump-sum of money once the settlement agreement is signed;
- The defendant agrees to do or not do something as a condition of settling the case; and/or
- The defendant agrees to pay a sum over a period of time (a “structured settlement”).
Structured settlements must be negotiated. Standard terms include:
- Whether the money is to be paid directly by the defendant or deposited with a third party (such as a life insurance company);
- The period of time over which money is to be paid;
- How often the money is to be paid (e.g., once a year, semi-annually, monthly, etc.);
- How much is to be paid on each payment date;
- Whether the settlement will include a lump sum payment at either the beginning or the end of the term;
- Whether payments continue to the plaintiff's heirs if the plaintiff dies before the full sum has been paid out; and
- Whether the party making or receiving the payments can (subject to applicable law) transfer its rights or obligations under the agreement.1
Structured settlements are typically used in Nevada injury cases in three situations:
- When the defendant does not have enough money to make a lump sum payment now;
- When there are tax advantages to deferring some of the payment; or
- When the plaintiff is unable to manage his or her finances for any reason, such as:
- The injuries have left the plaintiff seriously disabled,
- The plaintiff is financially irresponsible,
- The plaintiff is a very young, or
- There is concern that the plaintiff or the plaintiff's family will not manage the settlement responsibly.
Structured settlements are also common when the victim/plaintiff is a minor child and the settlement is reached by way of compromise of the minor's claim.
There is no set way a Nevada structured settlement must work. Most, however, involve either:
- A specified number of set payments over a period of time, or
- A set payment made at a regular date for the lifetime of the plaintiff or until all the money has been paid (an "annuity").
Example: Vanessa, a 35-year-old nurse practitioner, suffers a permanent brain injury and a painful spinal injury after an accident with a commercial vehicle in Nevada as she is driving home from work on I-215.
Vanessa's medical bills to-date total $140,000, with several surgeries and many years of therapy projected in her future. Her car is a total loss, bring her automobile property damages to $25,000. As of the date of settlement, she has lost wages of $175,000. An economic expert projects that her lost earning capacity over her lifetime will total $4,500,000 and she will require lifetime care. She has also asked for damages of $1,500,000 for pain and suffering, bringing her total compensatory damages to over $6.5 million.
The driver's employer has commercial auto insurance and umbrella policies with a total limit of $3,000,000. The insurer and employer agree either to pay Vanessa a lump-sum payment of $3,000,000 under the policy, or she can accept a structured settlement that will pay her $1,000,000 now, plus $100,000 per year for the rest of her life.
Most Nevada personal injury cases involve a lump-sum payment. The advantage to a lump-sum payment is obvious – you get the money now and don't have to worry that the defendant may cease to exist or become insolvent.
However, in some cases in can be advantageous to postpone all or part of a settlement payment, particularly if any portion is taxable as income.
Example: Carl owns a restaurant next door to Danielle's picture framing business. One of Carl's employees negligently starts a fire that burns much of Danielle's store. In addition to her property damage of $1,200,000, Danielle has to close her business for close to a year. An expert economist estimates her business losses at $1,300,000.
Carl's insurance limit is only $1,000,000. Danielle does not want to sue Carl for the rest (which might cause him to lose his business and/or his home). Instead, they agree, that Danielle will accept a $1,000,000 immediate payment from Carl's insurance to cover her property damage, and Carl will pay Danielle another $25,000 per year for the next 20 years.
Even though this is less money than Danielle might be able to get by suing Carl, it guards against her possibly getting less than she wants in court and makes sure she gets a significant chunk of money now. In addition, since most of the balance is taxable as lost business income Danielle is able to pay tax on it in later years.
Another potential advantage of a structured settlement is that it offers protection to plaintiffs who are not good with money management. Unfortunately, many plaintiffs who receive large settlements end up spending them right away, leaving them no money for future medical bills and income. A structured settlement is one way to guard against this.
If a company is well-capitalized and has been in business a long time, accepting payments over time may be fairly safe. However, if the company declares bankruptcy or otherwise goes out of business, you may lose any payments that have not yet been made.
To protect against this, a defendant will sometimes agree to pay a sum of money over to a life insurer or another financial institution on the plaintiff's behalf. The money will then be paid out as an annuity. For the reasons set forth above, it is important to make sure the company chosen is highly rated and capitalized.
Additionally, you should be aware that structured settlement agreements are often drafted by the defendant's insurer or lawyer. These agreements will almost always be weighted in favor of the defendant's interests.
Before agreeing to a structured settlement, it is highly recommended you retain an experienced Las Vegas personal injury lawyer to review and negotiate the agreement on your behalf.
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- See, e.g., NRS 42.030 on when transfer of a structured settlement must be approved by a court.