When Are Structured Settlements Required? A 50-State Guide

Are structured settlements mandatory? The short answer is that no U.S. state requires every plaintiff to take a settlement as periodic payments. That said, four narrow situations explain when a structured settlement is required or strongly encouraged instead of a lump sum: future damages above a state-specific dollar threshold, settlements involving minors or incapacitated adults, medical malpractice judgments against state defendants, and certain public-entity verdicts. Those are the cases that require a structured settlement, or come close to it.

If you are reading this because you are about to settle a case, advise a plaintiff through one, or weigh whether to sell payments you already have, the law in your state probably falls into one of those four buckets. Below, we walk through what cases require a structured settlement, when are structured settlements used, why they are used, the states that require periodic payments, the ones that actively encourage them, the federal tax provisions that make structured settlements financially attractive even when no court forces the issue, and what all of this means if you already hold a structured settlement and are thinking about selling.

Catalina Structured Funding has handled more than 4,000 structured settlement transactions across nearly every state. We read these statutes every week. The breakdown below pulls from a 2026 Westlaw 50-state legal survey, current state codes, and the federal Internal Revenue Code provisions that built the modern structured settlement market.

When Is a Structured Settlement Required? The Default Rule

When is a structured settlement required? Almost never as a universal rule, but federal tax law and state statutes carve out specific situations where periodic payment of damages becomes mandatory or strongly favored, and those carve-outs sit on top of an otherwise voluntary system.

The default U.S. rule is straightforward. Plaintiffs and defendants negotiate the form of payment, and most personal injury cases resolve as a lump sum. Structured settlements gained traction in the early 1980s after Congress passed the Periodic Payment Settlement Act of 1982. That act created two foundational federal provisions.

26 U.S.C. § 104(a)(2) (also cited as IRC § 104(a)(2)) excludes from federal gross income any damages received on account of personal physical injuries or sickness, whether the recipient takes the money in one lump sum or as periodic payments. 26 U.S.C. § 130 (IRC § 130) lets a defendant make a qualified assignment of its periodic-payment obligation to a qualified assignee, usually a life insurance subsidiary, which buys an annuity to fund the future payments. Without the qualified assignment mechanism in § 130, the modern structured settlement market does not exist.

26 U.S.C. § 5891 backs the system with teeth. It imposes a 40 percent excise tax on any sale or assignment of structured settlement payment rights that happens without a court order under a state Structured Settlement Protection Act. That excise tax is the reason every state passed an SSPA between 2001 and 2005, and it is the reason court approval is the single universal feature of structured settlement law in this country.

We have closed more than 4,000 structured settlement transactions across the United States. Our team is led by licensed attorneys, and we work within every state’s SSPA from the buyer side of these transactions. If you hold a structured settlement, your state’s SSPA is the controlling law for any sale or transfer, and reading it for yourself is one of the smartest things you can do before talking to any buyer. The rules below summarize when courts in each state must, may, or routinely will require periodic payments rather than a lump sum.

When Future Damages Cross a Dollar Threshold, Some States Require Periodic Payments

Six jurisdictions impose dollar thresholds that trigger required or court-considered periodic payments. The thresholds run from $100,000 in Idaho and Minnesota up to $500,000 in Louisiana for state medical malpractice claims.

Future damages are the part of an award that compensates a plaintiff for losses they will incur after trial: future medical care, future lost earnings, future pain and suffering. Courts and legislatures view these awards as the strongest candidates for periodic payment. The money is supposed to last for years or decades, and a lump sum invites both bad investment decisions and creditor exposure.

New York: $250,000 in medical malpractice judgments

For medical or dental malpractice judgments in New York, future damages exceeding $250,000 must be paid as a structured periodic payment under 11 NYCRR 70.5 and CPLR Article 50-A. The rule applies to judgments rendered after trial, not to negotiated settlements, but the threshold drives most settlement negotiations toward the same structure. Justia hosts the current text of CPLR Article 50-A.

Colorado: incapacitated plaintiffs under the Health Care Availability Act

The Colorado Supreme Court interpreted the Health Care Availability Act in HealthONE v. Rodriguez ex rel. Rodriguez, 50 P.3d 879 (Colo. 2002), to require periodic payment of future damages when the plaintiff is an "incapacitated person." The court held that an incapacitated person may not elect to receive that part of a damage award that represents future medical expenses and non-economic damages in a lump-sum payment rather than as periodic payments. The trial court approves the funding source and distribution method.

Idaho: $100,000 future-damages threshold

Under Idaho Code § 6-1602, when a verdict for future damages in a personal injury or property damage action exceeds $100,000, either party may request that the court enter judgment for periodic payment. The court considers the claimant’s best interests, the financial capacity of the judgment debtor, and the certainty of future damages, and it requires adequate security in the form of an annuity, personal guarantee, or reinsurance.

Minnesota: mandatory hearing above $100,000

Minnesota Statutes § 549.25 takes a different approach. When a claimant is awarded future damages greater than $100,000, the court must hold a hearing before entering judgment so the claimant can decide whether a structured payout is in their best interests. The court considers the claimant’s financial ability to meet obligations, the advantages of a structured settlement, and the claimant’s interest in self-determination. Judgment cannot enter until the claimant has notified the court of their decision.

California: $100,000 verdicts against public entities

California Government Code § 962 says that when a verdict against a public entity in a personal injury or wrongful death action exceeds $100,000, the public entity may request a mandatory settlement conference. At that conference, the parties are required to review and consider structured payment plans presented by either side. The statute does not force a structured settlement, but it forces the conversation.

Louisiana: state medical malpractice claims above $500,000

Louisiana Revised Statute 40:1237.1 covers medical malpractice claims against the state of Louisiana or a state health care provider. When total recovery exceeds $500,000, the claimant may demand that future medical care and related benefits be paid through a reversionary medical trust or through an annuity contract purchased by the state Office of Risk Management. The statute prescribes the funding mechanism rather than leaving it to negotiation.

Structured Settlement Minor Court Approval: Why Courts Push Toward Periodic Payouts

Structured settlement minor court approval is the second area where state law actively steers toward periodic payments. Every state requires court approval of a tort settlement involving a minor or an incapacitated person, and in several states a structured settlement annuity substitutes for an expensive legal guardianship, which makes structuring the practical default rather than a parties’ choice.

The protection-of-minors rule is the second most cited reason state law steers toward structured settlements. A child cannot legally manage a six- or seven-figure recovery, and most states require either a court-supervised guardianship or a court-approved structured settlement annuity. Structuring is usually the cheaper and faster option, and courts know it.

Florida: $15,000 net-to-minor threshold

In Florida’s Eleventh and Ninth Judicial Circuits, when a minor’s net settlement exceeds $15,000, the court ordinarily requires a legal guardianship. The court can waive the guardianship if the natural guardians request a structured settlement and the Guardian Ad Litem recommends it. The structured settlement contract has to prohibit anticipation, assignment, alienation, transfer, pledge, or encumbrance of the payments, and the payments cannot be subject to attachment or other legal process.

Delaware: $25,000 net-to-minor threshold

Delaware Superior Court Civil Rule 133 and 12 Del. C. § 3901 work the same way. For settlements above $25,000 net to a minor, the court may approve a court-approved annuity or structured financial instrument in lieu of appointing a guardian. The instrument must restrict payment to the minor until the date the minor reaches majority, and it must prohibit early sale, encumbrance, or transfer.

Texas: court-ordered annuities for minors and incapacitated persons

Texas Property Code §§ 142.008 and 142.009 authorize the court to order a structured settlement in suits involving a minor or incapacitated person who has no legal guardian and is represented by a next friend or guardian ad litem. The annuity must be backed by a U.S. government obligation or by a Texas-licensed insurer with at least $1 million in capital and surplus, and the court must approve the issuer. If you already have a Texas structured settlement and are thinking about selling future payments, our Texas SSPA guide walks through Chapter 141, the four required findings, and the major Texas transfer cases.

Tennessee: $10,000 mandatory-hearing rule

Tennessee Code Annotated § 29-34-105 requires a court hearing for any tort settlement involving a minor when the settlement is structured, the gross amount is $10,000 or more, or the minor is not represented by counsel. The court has broad discretion over the structure and may direct that the proceeds be paid to a legal guardian or held in trust.

Illinois: A-rated annuity carriers required

Several Illinois Judicial Circuits require that any annuity used to fund a minor’s structured settlement carry a Best’s Insurance Guide rating of "A" or better. For amounts above $10,000 to a minor, or for any minor under age 14, a probate proceeding is required unless the court waives it for good cause. Annuity payments before the minor reaches majority must be paid only to the estate of the minor or ward, with no withdrawals absent court order.

Ohio: $100 million carrier capital floor

Probate rules in Butler, Greene, Hamilton, and Montgomery Counties require that any annuity carrier funding a minor’s structured settlement be Ohio-licensed, hold at least $100 million in capital and surplus, and meet specified financial-strength ratings. For minor proceeds above $25,000, a full guardianship is required even when the structure is in place.

Pennsylvania: restricted accounts for minor wrongful-death shares

Pennsylvania Rule of Civil Procedure 2206 and 231 Pa. Code Rules 2039 and 2064 govern minor and incapacitated-person shares in wrongful death and personal injury settlements. The court may order a structured settlement underwritten by a financially responsible entity, with all payments during minority or incapacity routed to a restricted account that the recipient cannot draw from without further court order.

If you want to understand how courts evaluate annuity issuers in these contexts, our overview of major structured settlement annuity issuers covers the largest carriers in the market and the financial-strength ratings courts look for.

Why Are Structured Settlements Used Even When the Law Doesn’t Require Them?

Why are structured settlements used so often even where no court mandates them? The advantages of a structured settlement over a lump sum come down to three things: tax-free periodic payments under federal law, protection from spending the recovery too quickly, and the ability to preserve eligibility for need-based public benefits. The structured settlement vs lump sum trade-off is rarely about the headline number, it is about what survives over the next 20 or 30 years.

Even in states that leave the form of payment entirely to the parties, structured settlements remain the dominant resolution for catastrophic injury cases. Three reasons explain the pattern.

The first is taxes. Damages received on account of personal physical injuries or sickness are excluded from federal gross income under 26 U.S.C. § 104(a)(2), and the periodic-payment treatment under 26 U.S.C. § 130 lets the entire annuity stream pass to the recipient tax-free. A claimant who takes a lump sum and invests it owes ordinary income tax on the investment returns. A claimant who takes the same money as a structured settlement does not.

The second is durability. The Illinois Appellate Court in In re Nitz, 317 Ill.App.3d 119 (Ill.App. 2 Dist. 2000), put the policy plainly: Congress enacted favorable tax rules intended to encourage the use of structured settlements because recipients of structured settlements are less likely than recipients of lump-sum awards to consume their awards too quickly and require public assistance. The Pennsylvania Superior Court echoed the same point in Barber v. Stanko, 258 A.3d 438 (Pa.Super. 2021), explaining that structured settlements are encouraged because they provide long-term, tax-advantaged income and protect recipients from quickly dissipating lump-sum awards.

The third is public-benefits preservation. A lump-sum recovery that lands in a recipient’s bank account often disqualifies them from Supplemental Security Income or Medicaid, both of which apply asset caps. A structured settlement paired with a first-party special needs trust under 42 U.S.C. § 1396p(d)(4)(A) keeps the money out of the asset count. We see this combination in nearly every catastrophic-injury case we touch on the secondary market.

There is one practical consequence worth flagging. The same protective architecture that makes structured settlements attractive at the original settlement table also makes any later sale of payment rights subject to court oversight. The next section explains why.

The Best-Interest-of-the-Payee Standard Is Universal

Every state’s Structured Settlement Protection Act requires court approval of any sale of payment rights, applying the same statutory finding: the transfer must serve the best interest of the payee, considering the welfare and support of the payee’s dependents.

The phrase "best interest of the payee, considering the welfare and support of the payee’s dependents" appears in nearly identical form in every state’s SSPA. So does the requirement that the payee receive independent professional advice on the legal, tax, and financial implications of the sale, and that the transfer not contravene any applicable statute or court order. The SSPAs all use the same statutory definition of a structured settlement: an arrangement for the periodic payment of damages for personal injuries or sickness, established by settlement or judgment in resolution of a tort claim.

These protections cannot be waived. State after state writes the anti-waiver rule directly into the statute (see for example Ala. Code § 6-11-56, Cal. Ins. Code § 10139.5, Conn. Gen. Stat. § 52-225l, and Tex. Civ. Prac. & Rem. Code § 141.007). For state-specific deep dives, see our California SSPA guide and our Texas SSPA guide. The federal layer reinforces the structure. 26 U.S.C. § 5891 imposes a 40 percent excise tax on any factoring transaction that proceeds without a state court approval order.

A separate set of carve-outs governs transfers of life-contingent payments, which depend on the payee remaining alive on each payment date. Most states require the buyer to establish procedures for confirming the payee’s survival and for notifying the annuity issuer in the event of death (see Ala. Code § 6-11-56, Haw. Rev. Stat. § 676-6, and Mont. Code Ann. § 33-20-1410, with parallel provisions in most other state SSPAs). If you have life-contingent payments and want to understand how they trade differently from period-certain payments, our life-contingent payments page covers the mechanics in depth.

The model statute behind every state’s SSPA is the NCOIL Model State Structured Settlement Protection Act, which is the single best reference for understanding the architecture states adopted in the early 2000s.

State-Specific Encouragement: When Statutes Actually Push Toward Structuring

A handful of states use statutory or regulatory language that affirmatively favors structured settlements rather than merely permitting them. Wisconsin, Connecticut, Florida, Vermont, North Dakota, New Hampshire, and Washington all stand out.

The mandatory-or-encouraged divide is real, and these states sit on the encouragement end with language that goes further than tolerance.

Wisconsin’s workers’ compensation regulation puts it most directly. Wisconsin Administrative Code § DWD 80.03(1)(f) provides that "appropriate structured settlements will be approved" by the Department of Workforce Development. The Wisconsin Injured Patients and Families Compensation Fund is statutorily authorized to contract for annuity payments as part of structured settlements under Wis. Adm. Code § Ins 17.29(5)(c).

Connecticut takes a different approach. Conn. Gen. Stat. § 38a-395 requires medical professional liability insurers to report to the Insurance Commissioner whether they used a structured settlement to resolve any claim. That reporting requirement is unique among the 50 states and reflects an implicit policy preference.

Florida’s state risk management division goes further still. Florida Statutes § 284.33 authorizes the Department of Financial Services to retain a structured settlement insurance consulting firm and to purchase annuities through that firm to fund settlements of state-defendant claims. The statute carves out an explicit exception to competitive bidding because the legislature wanted the structured-settlement option preserved.

Vermont’s policy statement (9 V.S.A. § 2480aa) declares that structured settlement agreements serve valid purposes, including protecting individuals from economic victimization and ensuring their ability to provide for future needs and obligations. The Vermont Supreme Court reinforced that principle in Stevens Law Office v. Symetra Assigned Benefits Service Company, 205 Vt. 136 (Vt. 2017).

North Dakota’s workers’ compensation statute (N.D. Cent. Code § 65-05-25) authorizes the workers’ compensation organization to contract with a third-party vendor to provide structured settlement payments, and it explicitly contemplates structured settlements as the resolution mechanism for ongoing future benefits.

New Hampshire’s Youth Development Center settlement fund deserves a special mention. N.H. Rev. Stat. § 21-M:11-a says claimants may demand that an award be paid in the form of periodic payments under a structured settlement funded by an annuity from a qualified life insurance company, and the administrator is required to accommodate the request. Our coverage of the New Hampshire YDC settlement payout walks through how that fund handles structured settlement requests.

Washington added a wrongful-conviction exception to its general framework. RCW 4.100.060 lets the claimant or attorney general initiate a structured settlement for a wrongful-conviction compensation award, with court approval contingent on actuarial equivalence to the lump-sum amount and a finding that the structure serves the claimant’s best interests.

Quick-Reference Table: Where Structured Settlements Are Required or Encouraged

Eighteen jurisdictions stand out for either mandating periodic payments in narrow contexts or expressly encouraging them by statute. The table below ties each to its controlling statute or case so you can find the source quickly.

State	Trigger	Citation	Effect
Colorado	Incapacitated plaintiff in HCAA medical malpractice	HealthONE v. Rodriguez, 50 P.3d 879 (Colo. 2002)	Required
New York	Med-mal judgments above $250,000 future damages	11 NYCRR 70.5; CPLR Art. 50-A	Required
Idaho	Civil future damages above $100,000	I.C. § 6-1602	Court-orderable on motion
Minnesota	Future damages above $100,000 in any tort case	Minn. Stat. § 549.25	Mandatory hearing
California	Public-entity verdicts above $100,000	Cal. Gov. Code § 962	Mandatory settlement conference
Louisiana	State med-mal recovery above $500,000	La. Rev. Stat. 40:1237.1	Mandatory funding mechanism
Florida	Net minor settlements above $15,000	11th Cir. Order 08-18; 9th Cir. Order 07-93-43-02	Practically required
Delaware	Net minor settlements above $25,000	Del. Super. Ct. Civ. R. 133; 12 Del. C. § 3901	Practically required
Texas	Minors and incapacitated persons without guardian	Tex. Prop. Code §§ 142.008, 142.009	Court-orderable on motion
Tennessee	Minor tort settlements at $10,000+ or any structured component	Tenn. Code Ann. § 29-34-105	Mandatory hearing
Illinois	Minor structured settlements (multiple Judicial Circuits)	IL Local Rules; 215 ILCS 153/5	Carrier rating and probate rules
Ohio	Minor structured settlements	Butler / Greene / Hamilton / Montgomery County Probate Rules	Carrier rating and capital floor
Pennsylvania	Minor and incapacitated wrongful-death and survival shares	Pa.R.C.P. 2206; 231 Pa. Code Rules 2039, 2064	Restricted accounts
Wisconsin	Workers’ compensation	Wis. Adm. Code § DWD 80.03(1)(f)	Expressly encouraged
Connecticut	Medical professional liability claims	Conn. Gen. Stat. § 38a-395	Insurer reporting required
Florida	State Division of Risk Management claims	Fla. Stat. § 284.33	Statutorily favored mechanism
Vermont	Structured settlements generally	9 V.S.A. § 2480aa	Express policy support
New Hampshire	Youth Development Center settlement fund	N.H. Rev. Stat. § 21-M:11-a	Claimant-demandable
Washington	Wrongful-conviction compensation	RCW 4.100.060	Authorized with court approval

Most other states fall somewhere between "permitted" and "encouraged in specific contexts," and almost every state requires court approval whenever a minor, incapacitated person, or vulnerable beneficiary is involved.

What This Means If You Already Have a Structured Settlement

The same court oversight that protected you at settlement also governs any later sale of payments. Every state requires a court order under its SSPA before payment rights can be transferred to a buyer, and the standard the second judge applies is the same best-interest standard the first judge applied.

If you already receive periodic payments from a structured settlement and you are thinking about selling some or all of them, the protection your original judge built into the agreement does not disappear. It transfers to the next judge.

A petition has to be filed. Notice has to go to the annuity issuer and the structured settlement obligor, and in some states to the state attorney general. The court schedules a hearing, reviews the proposed transfer, and decides whether the deal is in your best interest, considering the welfare and support of any dependents. The court also confirms that you received independent professional advice on the legal, tax, and financial implications of the sale, or knowingly waived that right in writing.

We see two patterns here that matter for sellers. The first is that judges have broad discretion in applying the best-interest standard. Two judges in the same county, applying the same statute, can reach different conclusions on materially identical facts. The second is that the buyer’s quality of preparation drives the outcome. Petitions that fail typically fail because the buyer cut corners on disclosures, did not arrange for the dependents-welfare evidence the court expects, or asked for a sale that left the seller with no remaining periodic income.

Catalina Structured Funding has been on the buying side of these transactions for more than 15 years. Our team is led by licensed attorneys, and we have closed more than 4,000 structured settlement transactions in nearly every U.S. jurisdiction. The amount we quote is the amount you receive. If you want to know what your specific payments are worth and how the court process would unfold in your state, call us at (800) 317-3769 or request a free, no-obligation quote on this site. For sellers who want a complete walkthrough of getting cash for a structured settlement, that page covers offer comparison and lump-sum quotes. We go deeper into the structured settlement court hearing process and why people sell structured settlement payments in our other coverage. For the dedicated guide to how to sell a structured settlement, our LP walks through every stage from quote to funding. If you only want a portion of your payments converted to cash, our cash-out page explains the partial-sale option.

Frequently Asked Questions

Are structured settlements ever legally required?

A handful of states require periodic payments in specific situations. New York mandates structured payment of medical malpractice judgments above $250,000 in future damages. Colorado requires periodic payments for incapacitated plaintiffs under the Health Care Availability Act. Idaho and Minnesota trigger judicial review for future damages above $100,000. Most other tort cases remain voluntary.

Why do courts prefer structured settlements for minors?

Periodic payments protect a minor’s funds until the child reaches the age of majority. In Florida, Delaware, Texas, Tennessee, Illinois, Ohio, and Pennsylvania, a court-approved annuity often substitutes for a costly legal guardianship. The structured settlement also restricts early access, which keeps the recovery intact for its intended purpose.

Are structured settlement payments tax-free?

Yes. Under 26 U.S.C. 104(a)(2), damages received on account of personal physical injury or sickness are excluded from federal gross income. The Periodic Payment Settlement Act of 1982 added 26 U.S.C. 130, which lets a defendant assign its periodic-payment obligation to a qualified assignee that funds the future payments through an annuity. Both the periodic payments and the internal annuity growth pass to the recipient tax-free.

What is the Structured Settlement Protection Act?

Every state has enacted some form of Structured Settlement Protection Act, modeled on the NCOIL Model State Structured Settlement Protection Act. The state SSPA requires court approval before any sale of structured settlement payment rights. The federal 26 U.S.C. 5891 backs the system with a 40 percent excise tax on transfers that bypass court review.

What does "best interest of the payee" mean?

It is the legal standard a court applies before approving the sale of structured settlement payments. The judge considers the welfare and support of the payee’s dependents, whether the payee received independent professional advice on the legal, tax, and financial implications, and whether the transfer would contravene any applicable statute or court order. The standard appears in nearly identical form in every state’s SSPA.

Can I sell my structured settlement payments later?

Yes, but only with court approval under your state’s SSPA. The buyer files a petition, gives notice to the annuity issuer and structured settlement obligor, and the court holds a hearing to apply the best-interest standard. Catalina Structured Funding handles the petition, the disclosures, and the court hearing in nearly every U.S. jurisdiction. Call (800) 317-3769 or request a quote on this site.

The thread that runs through every state’s law on this subject is the same. Structured settlements exist because Congress and state legislatures concluded that injured people are better off with predictable, tax-free periodic payments than with a lump sum that disappears. The next time someone asks whether a structured settlement is required, the right answer is "in some cases, yes, and in many more cases the law works hard to encourage it." Our structured settlements hub covers the buyer-side mechanics for anyone holding existing payments and weighing the sale option.