When it comes to settlement plans, attorneys and clients are most likely familiar with a structured settlement annuity. It is one of the most popular annuities for settlement, primarily because of its tax-exempt nature.
The downside of a structured settlement annuity is it has to be set up at the time of settlement. The client has to determine the future payment schedules during this process. The payment schedule is fixed and determinable; clients can’t change it in the future. This means the client can’t access funds from that annuity if there is an emergency. The schedule is fixed and set.
Another type of annuity that is less common — but that can be an excellent option for a client who wants more flexibility in terms of payment schedules — is the fixed income annuity.
A Fixed Income Annuity Offers More Flexibility
In some cases, it makes more sense to have more flexibility in the annuity. A fixed income annuity is an annuity with some guarantee against loss while also allowing for market rates of return inside the annuity. The upside in these annuities is usually capped at some amount, but the annuities offer downside protection (i.e., if the markets go down, the annuity payments remain the same). So, a fixed annuity often offers the potential of better rates of return than the structured settlement annuity fixed rates are offering.
Fixed income annuities also allow for cash to be withdrawn from the annuity for at least a certain percentage each year without penalty. There’s more flexibility within a fixed income annuity than in a structured settlement annuity.
A Mixed Solution Depending on the Client’s Needs
When a client needs guaranteed income and the benefits that annuities can offer, we assess their situation and work to determine if a structured settlement annuity or a fixed income annuity makes the most sense.
In some cases, we will have some of the funds from the settlement come into a structured settlement annuity and some into a fixed income annuity. This gives the client much more flexibility while also having the guarantees available from both a structured settlement annuity and a fixed income annuity.
While structured settlement annuities are more common, it’s important to understand that there are other types of annuities that provide a variety of benefits. It’s a case-dependent analysis that we go through with clients. We can set up a fixed income annuity, a structured settlement annuity, a structured settlement annuity and a trust, a fixed income annuity and a trust, or all of the above. It all depends on the client’s needs and preferences.
If your client is considering a structured settlement annuity but is thinking twice because of the fixed payment schedule, give us a call. We can work a scenario where we can set up an annuity with guaranteed return rates while having the flexibility on cash withdrawals.
We can develop a plan that gives clients enough flexibility with enough guarantees to ensure their future needs and goals are met.