A structured settlement pays compensation over time in periodic payments rather than a single lump sum. For large settlements, particularly those involving catastrophic injuries, minors, or long-term medical needs, structured settlements provide significant tax advantages, spendthrift protection, and guaranteed income that a lump sum does not.
The Tax Advantage
Under IRC § 104(a)(2), compensation for physical injuries is tax-free. Under IRC § 130, properly structured periodic payments for physical injury settlements are received entirely tax-free, including the investment earnings on the annuity that funds the payments. This is the critical distinction from a lump sum.
A lump sum settlement of $500,000 for physical injuries is received tax-free. But if you invest that $500,000 and it generates $30,000 per year in investment income, that $30,000 is taxable as ordinary income or capital gains. Over 30 years, the tax on investment earnings is substantial.
A structured settlement of the same $500,000, funded by an annuity that generates periodic payments totaling more than $500,000 over 30 years, delivers every dollar tax-free, including the growth component of the annuity that funds payments above the original settlement amount. Over decades, the tax savings alone can represent hundreds of thousands of dollars in additional value.
When Structure Makes Sense
Large settlement amounts where investment discipline and protection against financial mismanagement are concerns. Minor settlements where court-supervised fund protection is required and periodic payments can be timed to coincide with milestones (college age, age 21, age 25). Catastrophic injuries with projected lifetime medical costs that benefit from guaranteed periodic funding. Plaintiffs who prefer predictable, guaranteed income over the uncertainty of self-managed investments.
When Lump Sum Is Better
Immediate financial need (medical bills, mortgage, debt). Sophisticated financial management capability and preference for controlling investment decisions. Relatively small settlements where structuring costs (annuity purchase, administrative fees) consume a disproportionate percentage of the recovery.
Structuring Must Happen Before Settlement Is Finalized
Tax-advantaged structuring must be arranged before the settlement agreement is signed. The IRS requires that the structured settlement be established as part of the original settlement, not as a post-settlement investment decision. Once the settlement is finalized as a lump sum, retroactive structuring is not possible. This timing requirement makes structuring discussions a pre-settlement planning item.
Georgia’s Structured Settlement Protection Act
Structured settlements can be sold to factoring companies that purchase future payment rights at a discount. Georgia’s Structured Settlement Protection Act requires court approval for any sale, specifically to protect recipients from disadvantageous transactions where they receive far less than the present value of their remaining payments. The discount rates applied by factoring companies often mean the seller receives 50 to 70 cents on the dollar.
For the tax treatment of different settlement components, see Are Car Accident Settlements Taxable in Georgia.
This guide covers Georgia car accident law as of March 2026. Laws change. This information is educational and does not constitute legal advice. If you need advice about your specific situation, consult a licensed Georgia attorney.
Last updated: March 2026
