Monetary Settlements and Special Circumstances Flashcards
Structured settlement:
A stream of tax-free cash flows used to fulfill legal settlement rather than a lump sum.
Often used for cases where on-going care is necessary as a remedy.
The amount can be sold to receive a lump sum for part or all of the cash payments
Lottery winnings and monetary windfall:
Taxes are withheld before distribution takes place.
Taking a lump sum is preferred for estate planning.
Winners can sell their stream of cash flows in order to receive a lump sum.
Lump sum retirement distributions:
A one-time payout of the entire account balance of a qualified retirement plan.
The payout must be for a qualified reason such as attainment of age 59 ½, death, disability, or for separation of service. Distributions are generally taxed as ordinary income, but may also be deferred by rolling the balance into an IRA or another qualified retirement plan.
Generally Insurance proceeds paid to the beneficiary as:
1.) a lump sum (one payment which is income tax free) or
2.) an annuity payment (each payment is partially taxed at the ordinary income tax rate with a tax-free return of the basis component).
A ________ is a method of compensating injury victims voluntarily agreed upon between an injury victim and the defendant. One advantage of structured settlements is that the federal government has passed regulations that make the payments tax-free to the victim.
structured settlement
What types of cases are more likely to result in structured settlements?
Temporary or permanent disability
Guardianship for minors or incompetents
Workers’ compensation
Wrongful death where the surviving family members need monthly or annual income
Severe injuries resulting in need for long-term medical care, living expenses, and support of family
______ the discount rate, the lower the amount of the lump-sum, and vice versa.
higher
Monetary Settlements: Can be paid in a ______ or ______ payments
lump sum or structured
_______________ is an amount paid by a person to a spouse or former spouse under a divorce or separation agreement.
Alimony
Lottery winners are required to have _____ of winnings automatically withheld for federal tax purposes.
24%
Life insurance proceeds paid via a lump sum are _____.
income tax free
A _____ is an instance of wrongdoing that leads to civil legal liability.
tort
___________ and _________ may alleviate some of the financial burden as long as the defendant did not commit a criminal act to intentionally harm another.
Proper risk management and emergency fund planning
T/F: Child support is not tax-deductible by the payor and is not taxable as income for the payee.
True
What requirements must be met for an ex-spouse to collect Social Security retirement?
The ex-spouse who is seeking the benefits is not entitled to benefits or is entitled to lower benefits based on his or her own earnings record.
The marriage lasted over 10 years.
The ex-spouse who is seeking the benefit is 62 or older.
The ex-spouse who is seeking the benefit is unmarried.
