A lump sum settlement transfers the full amount in a single payment, closing the matter immediately. It contrasts with structured settlements paying over time through an annuity.
Tax treatment differs from structured arrangements.
Alternative Names:
Lump Sum Payment, Single Payment Settlement
Why it Matters?
Lump sums give the defendant immediate closure and eliminate the administrative obligation a structure creates, which is why defendants generally prefer them. For claimants the tradeoff is tax treatment, since structured payments for physical injury remain excludable while investment income from an invested lump sum does not. Raising the structure option is worth doing where the amount is substantial, because the tax difference can fund a higher effective recovery.
Frequently Confused with
Related terms
Frequently asked questions
Why do defendants prefer lump sums?
What is the claimant's tax tradeoff?
