Special ConsiderationsAny person entering into a structured settlement should be on guard for potential exploitation in relation to the settlement:Excessive Commissions -Annuities can be highly profitable for insurance companies, and they often carry very large commissions. It is important to ensure that the commissions charged in setting up a structured settlement don't consume an inappropriate percentage of its principal.Overstated Value - Sometimes, after negotiating a particular settlement figure, the defense will overstate the value of a structured settlement. As a result the plaintiff, in accepting the settlement, in fact obtains a significantly lower dollar value than was agreed upon. Some defendants have nominally paid the full amount of the settlement, knowing that they would later obtain significant rebates from the annuity companies they used.
Plaintiffs should consider compariing the fees and commissions charged for similar settlement packages by a variety of insurance companies, to make sure that they are in fact getting full value. A plaintiff may wish to make it a condition of the settlement that the defendant will actually pay the full value of the settlement in setting up the structured settlement, and that any rebates received by the defendant for annuities included in the settlement be payable to the plaintiff.Self-Dealing - There have been cases where the plaintiff's lawyer is also in the insurance business, and sets up a structured settlement on behalf of a client without disclosing that the attorney is purchasing the annuities from his own business, or is pocketing a large commission on the annuities. Similarly, there have been situations where the plaintiff's attorney has referred the client to a particular financial planner to set up a structured settlement, without disclosing that the financial planner will be paying the attorney a referral fee in relation to the client's account. Make sure that you know what financial interest, if any, your lawyer has in relation to any financial services sold or recommended by the lawyer.Life Expectancy -It is unfortunate, but many people who receive large personal injury or workers' compensation settlements will have a shortened life expectancy as a result of their injuries. It is important to consider life expectancy in association with any structured settlement, and to consider whether it is appropriate to enter into an annuity where payments will cease upon death. Sometimes it will make sense to insist upon an annuity that pays a minimum number of payments, or one that will pay a balance into the plaintiff's estate, such that the value of the settlement is not lost to an insurance company upon the plaintiff's untimely death.Using Multiple Insurance Companies -For larger settlements, it often makes sense to purchase annuities for a structured settlement from several different companies, dividing the settlement between those companies.
This can provide you with protection in the event that a company that issued annuities for your settlement package goes into bankruptcy - even in the event that one of the companies defaults in part or in full on your settlement payments, you would still receive full payment from the other companies.
Friday, December 5, 2008
How To Sell A Structured Settlement
There are many different reasons why people would want to sell a structured settlement. Perhaps a better investment opportunity is coming away and you need a large chunk of money now. Or, you're facing a major expense, and can't cover it with a monthly payments you are currently receiving Whatever the case, the time is come to sell your structured settlement. What is the best way to go about doing that? That is the focus of this article. The first of the selling anything is to locate a buyer. There are many companies out there that specializes in purchasing these settlements. You can locate these companies through a referral from a broker, or lawyer. In addition, you can do searches on the Internet to uncover different options that are available to you. Finally, don't overlook potentially local options that are your disposal as well. In order to sell your structured settlement, you have to have the necessary paperwork available, to transfer over to the company.
The companies will want to evaluate the paperwork to determine the assets involved, and if they can be bought or transferred. In addition, there are certain other documents you need to fill out before you can exchange your structured settlement for a lump sum of payment. There are a number of things to take into consideration. The most important is discounting the present value. This is where the inflation that was factored in must be discounted to present-day value, based on the amount of future settlement payments you're selling. Be aware of this fact, as well as how it affects you. If you're confused, talk to an expert first, before selling. If everything is approved and go smoothly, then the final step is choosing how you will receive your payment. The most common way this is done is by direct deposit into your bank account, although cashier check is also an option. In conclusion, I have given you a simple guide to how to go about selling future payments on a structured settlement. Whatever the reason may be for your need to sell, there are many options available to you. Consider these facts, and use them to help you make the right choice to locate a reputable structured settlement company.
A Better Way To Sell A Structured Settlement - Auction
Structured settlements were introduced in Canada and the United States in the 1970's. They were introduced as an alternative to lump sum payments, common in insurance settlements and lottery winnings. In the decades since, they have also been accepted as legal financial instruments in England and Australia. The aforementioned common law countries have decided to include structured settlements in their statutory tort laws. These four countries handle tort law and the structure settlement packages a little bit differently, but the general overall definition applies across the board. In a nutshell, a structured settlement by legal definition is a statutory agreement to pay a specified sum of money over a period of time, on a payment system. Payment Arrangements When someone wins a court settlement (or if they settle the case beforehand), the insurance company often gives the winner a choice of taking a specified amount of money in a lump sum, or a bit more money if the insurance company can enter into a structured settlement arrangement.
Of course, it is in the insurance company's best interest to pay the claimant in a structured settlement, because the insurance company can earn interest, during the structured payment cycle, on the full sum of money it would have paid in a lump sum. The insurance company wins in the profit game, when they get to enter into a structured settlement. They will be able to invest the full sum of money owed, and they get to earn interest or dividends on the money in hand during the payment period. Structured settlements are most often paid out in the form of an annuity over a period of time. An annuity is also legally classified as a financial instrument. Once again, the financial institution will gain an additional financial advantage, because they can collect interest or earn other kinds of income on the bulk amount, during the payment period. Annuity And Structured Settlement Buyouts Structured Settlements for a great deal of clients are the ideal solution. Payments spread out over a period of time allow clients to balance their finances and pay bills in the years to come. Some people get their structured payments $300, $1000 or even more each month. Sometimes they may include lump sum payments many years in the future. This is fine as long as their life is humming along and their bills are being paid.
Yet, circumstances sometimes get in the way, and people need the lump sum cash right away to solve some issue that has come up in their lives. Because annuities and structured payments are a legally-binding financial agreement, those items can be transferred to another person under the terms of the laws that have been set up to manage these financial products. But, when faced with a serious financial crunch, some people hastily sell their annuities and structured settlements to the first company who would be willing to buy them for a lump sum amount These companies who are willing to buy-out annuities and structured payments are commonly referred to as "Factoring" companies, because they use "Factors" to determine how much future payments are currently worth, and how much they should buy them for. The Standard Method of Selling A Structured Settlement - Persistence and Patience (not always used) We've all seen the countless ads on TV from a variety of companies, "Get Lump Sum Cash Now."
For years, people have turned to factoring companies in their time of financial need. Smart consumers will learn from the insurance companies. Have you ever been involved in a car wreck? The insurance company requires for you to get three estimates and then they will pay the company that offers them the best deal. The smart consumer will invest a little bit more of his or her time to make sure they get the best deal for their annuity or structured settlement. They will call at least three factoring companies and get competitive bids from each. Then they will go back to the three aforementioned companies and see if any are willing to beat their best offer. It can be tiring and time-consuming to follow through in this process, but for the average person, it could be worth several thousand or even tens of thousands of dollars in one's bank account at the end of the process. The Better Method of Selling a Structured Settlement – Open Marketplace Auction A new service has been introduced by www.QuoteMeAPrice.com (QMAP). This website allows Structured Settlement owners the ability to list details of their settlement online, and receive cash bids directly from Top-Rated Funding firms.
The process is relatively simple. Clients sign up for a free account and list the details of the structured settlement or annuity. Once an account is created and the details of the payment arrangement are known, Funding Firms can log in and make cash bids directly on the purchase of the structured settlement. Each firm can see the current highest cash offer, and if they wish to beat it with a higher cash price, they can do so. Sellers do not need to worry about being called countless times by salespeople because the contact information of the structured settlement owner is not shared. When a factoring company makes a cash bid on the settlement, QMAP notifies the settlement owner of the new bid via email. Having settlement buyers compete in an open marketplace lowers the profit margin for funding firms, and forces the lowest possible discount rates to be applied when funding companies compete to buy future payments. This in turn ensures that clients can get the maximum amount of money back from their settlement. The Importance of Comparison Shopping (actual Quote Me A Price client) Two siblings had been receiving separate, but identical annuity payouts in the form of a structured settlement from an accidental family member death. Sibling one got into a financial crunch.
When this happened, sibling one called a "Factoring Company." She was offered a lump sum buyout, and although the offer was much lower than the value of the settlement, sibling number one didn't realize the importance of shopping the competition, and sold her settlement for $70,000. Sibling number two heard about the buyout and thought that it would be nice to have her cash now also. But, sibling number two was not as desperate for an immediate buyout. Sibling number two took the time to shop around for a better deal. Sibling two managed to uncover QuoteMeAPrice.com, and they helped to secure the best offer possible. Sibling number one got a $70,000 buyout and was initially happy with her cash buyout. Sibling number two came to QMAP with the same initial $70,000 buyout offer for the settlement. After working with Quote Me A Price, sibling number two got offered $100,000 for the same settlement sibling number one sold for $70,000. Sibling number two sold her settlement for $100,000 to JG Wentworth who is a partner in the QMAP service. While sibling number two did get the best possible deal, sibling number one unfortunately has to live with the fact knowing that she made a $30.000 mistake by not shopping the competition.
In Conclusion Your structured settlement or annuity is the foundation of your financial future. If you find yourself in financial need now, you should at the very least give yourself a couple more weeks to shop your deal to the competition. You might be telling yourself that you cannot afford to wait, but the truth is that you cannot afford to take the first bid that you are offered. In some cases, jumping at the first offer could be the equivalent of financial suicide to a structured settlement owner. So, be patient and persistent in the process of finding a buyer for your settlement. And remember, if you are willing to negotiate with a car dealer on the price you pay for a car, then there should be no reason in the world that you should not negotiate with a factoring company when you are looking for a buy-out of your settlement.
The companies will want to evaluate the paperwork to determine the assets involved, and if they can be bought or transferred. In addition, there are certain other documents you need to fill out before you can exchange your structured settlement for a lump sum of payment. There are a number of things to take into consideration. The most important is discounting the present value. This is where the inflation that was factored in must be discounted to present-day value, based on the amount of future settlement payments you're selling. Be aware of this fact, as well as how it affects you. If you're confused, talk to an expert first, before selling. If everything is approved and go smoothly, then the final step is choosing how you will receive your payment. The most common way this is done is by direct deposit into your bank account, although cashier check is also an option. In conclusion, I have given you a simple guide to how to go about selling future payments on a structured settlement. Whatever the reason may be for your need to sell, there are many options available to you. Consider these facts, and use them to help you make the right choice to locate a reputable structured settlement company.
A Better Way To Sell A Structured Settlement - Auction
Structured settlements were introduced in Canada and the United States in the 1970's. They were introduced as an alternative to lump sum payments, common in insurance settlements and lottery winnings. In the decades since, they have also been accepted as legal financial instruments in England and Australia. The aforementioned common law countries have decided to include structured settlements in their statutory tort laws. These four countries handle tort law and the structure settlement packages a little bit differently, but the general overall definition applies across the board. In a nutshell, a structured settlement by legal definition is a statutory agreement to pay a specified sum of money over a period of time, on a payment system. Payment Arrangements When someone wins a court settlement (or if they settle the case beforehand), the insurance company often gives the winner a choice of taking a specified amount of money in a lump sum, or a bit more money if the insurance company can enter into a structured settlement arrangement.
Of course, it is in the insurance company's best interest to pay the claimant in a structured settlement, because the insurance company can earn interest, during the structured payment cycle, on the full sum of money it would have paid in a lump sum. The insurance company wins in the profit game, when they get to enter into a structured settlement. They will be able to invest the full sum of money owed, and they get to earn interest or dividends on the money in hand during the payment period. Structured settlements are most often paid out in the form of an annuity over a period of time. An annuity is also legally classified as a financial instrument. Once again, the financial institution will gain an additional financial advantage, because they can collect interest or earn other kinds of income on the bulk amount, during the payment period. Annuity And Structured Settlement Buyouts Structured Settlements for a great deal of clients are the ideal solution. Payments spread out over a period of time allow clients to balance their finances and pay bills in the years to come. Some people get their structured payments $300, $1000 or even more each month. Sometimes they may include lump sum payments many years in the future. This is fine as long as their life is humming along and their bills are being paid.
Yet, circumstances sometimes get in the way, and people need the lump sum cash right away to solve some issue that has come up in their lives. Because annuities and structured payments are a legally-binding financial agreement, those items can be transferred to another person under the terms of the laws that have been set up to manage these financial products. But, when faced with a serious financial crunch, some people hastily sell their annuities and structured settlements to the first company who would be willing to buy them for a lump sum amount These companies who are willing to buy-out annuities and structured payments are commonly referred to as "Factoring" companies, because they use "Factors" to determine how much future payments are currently worth, and how much they should buy them for. The Standard Method of Selling A Structured Settlement - Persistence and Patience (not always used) We've all seen the countless ads on TV from a variety of companies, "Get Lump Sum Cash Now."
For years, people have turned to factoring companies in their time of financial need. Smart consumers will learn from the insurance companies. Have you ever been involved in a car wreck? The insurance company requires for you to get three estimates and then they will pay the company that offers them the best deal. The smart consumer will invest a little bit more of his or her time to make sure they get the best deal for their annuity or structured settlement. They will call at least three factoring companies and get competitive bids from each. Then they will go back to the three aforementioned companies and see if any are willing to beat their best offer. It can be tiring and time-consuming to follow through in this process, but for the average person, it could be worth several thousand or even tens of thousands of dollars in one's bank account at the end of the process. The Better Method of Selling a Structured Settlement – Open Marketplace Auction A new service has been introduced by www.QuoteMeAPrice.com (QMAP). This website allows Structured Settlement owners the ability to list details of their settlement online, and receive cash bids directly from Top-Rated Funding firms.
The process is relatively simple. Clients sign up for a free account and list the details of the structured settlement or annuity. Once an account is created and the details of the payment arrangement are known, Funding Firms can log in and make cash bids directly on the purchase of the structured settlement. Each firm can see the current highest cash offer, and if they wish to beat it with a higher cash price, they can do so. Sellers do not need to worry about being called countless times by salespeople because the contact information of the structured settlement owner is not shared. When a factoring company makes a cash bid on the settlement, QMAP notifies the settlement owner of the new bid via email. Having settlement buyers compete in an open marketplace lowers the profit margin for funding firms, and forces the lowest possible discount rates to be applied when funding companies compete to buy future payments. This in turn ensures that clients can get the maximum amount of money back from their settlement. The Importance of Comparison Shopping (actual Quote Me A Price client) Two siblings had been receiving separate, but identical annuity payouts in the form of a structured settlement from an accidental family member death. Sibling one got into a financial crunch.
When this happened, sibling one called a "Factoring Company." She was offered a lump sum buyout, and although the offer was much lower than the value of the settlement, sibling number one didn't realize the importance of shopping the competition, and sold her settlement for $70,000. Sibling number two heard about the buyout and thought that it would be nice to have her cash now also. But, sibling number two was not as desperate for an immediate buyout. Sibling number two took the time to shop around for a better deal. Sibling two managed to uncover QuoteMeAPrice.com, and they helped to secure the best offer possible. Sibling number one got a $70,000 buyout and was initially happy with her cash buyout. Sibling number two came to QMAP with the same initial $70,000 buyout offer for the settlement. After working with Quote Me A Price, sibling number two got offered $100,000 for the same settlement sibling number one sold for $70,000. Sibling number two sold her settlement for $100,000 to JG Wentworth who is a partner in the QMAP service. While sibling number two did get the best possible deal, sibling number one unfortunately has to live with the fact knowing that she made a $30.000 mistake by not shopping the competition.
In Conclusion Your structured settlement or annuity is the foundation of your financial future. If you find yourself in financial need now, you should at the very least give yourself a couple more weeks to shop your deal to the competition. You might be telling yourself that you cannot afford to wait, but the truth is that you cannot afford to take the first bid that you are offered. In some cases, jumping at the first offer could be the equivalent of financial suicide to a structured settlement owner. So, be patient and persistent in the process of finding a buyer for your settlement. And remember, if you are willing to negotiate with a car dealer on the price you pay for a car, then there should be no reason in the world that you should not negotiate with a factoring company when you are looking for a buy-out of your settlement.
structured settlement
A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments”. A structured settlement incorporated into a trial judgment is called a “periodic payment judgment”.Structured Settlements in the United States:The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the Federal Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes.
Medicaid and Medicare laws and regulations impact structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” the “Special Needs Trusts”.Injury victims should know that structured settlements are endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities [1] and the National Organization on Disability [2].DefinitionsThe United States definition of “structured settlement” for Federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1), is an "arrangement" that meets the following requirements:A structured settlement must be established by:A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2);or An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)
(1); and The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)
(2) and must be payable by a person who: Is a party to the suit or agreement or to a workers' compensation claim; or By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with Internal Revenue Code Section 130. Legal StructureThe typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant.
To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity (which arrangement is called an "assigned case").
In an unassigned case, the property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.In an assigned case, the property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party.
The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obliger is desirable for property/casualty companies that do not want to retain the periodic payment obligation on their books. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 [3]. Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes.
If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.
Medicaid and Medicare laws and regulations impact structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” the “Special Needs Trusts”.Injury victims should know that structured settlements are endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities [1] and the National Organization on Disability [2].DefinitionsThe United States definition of “structured settlement” for Federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1), is an "arrangement" that meets the following requirements:A structured settlement must be established by:A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2);or An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)
(1); and The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)
(2) and must be payable by a person who: Is a party to the suit or agreement or to a workers' compensation claim; or By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with Internal Revenue Code Section 130. Legal StructureThe typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant.
To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity (which arrangement is called an "assigned case").
In an unassigned case, the property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.In an assigned case, the property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party.
The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obliger is desirable for property/casualty companies that do not want to retain the periodic payment obligation on their books. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 [3]. Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes.
If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.
Friday, May 9, 2008
structured settlement
structured settlement
A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including: Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlement. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments”. A structured settlement incorporated into a trial judgment is called a “periodic payment judgment”.
Structured Settlements in the United States
The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the Federal Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations impact structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” the “Special Needs Trusts”.
Injury victims should know that structured settlements are endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities [1] and the National Organization on Disability [2].
Definitions
The United States definition of “structured settlement” for Federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1), is an "arrangement" that meets the following requirements:
A structured settlement must be established by:
A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2);
or
An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1); and
The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) and must be payable by a person who:
Is a party to the suit or agreement or to a workers' compensation claim; or
By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with Internal Revenue Code Section 130.
Legal Structure
The typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity (which arrangement is called an "assigned case").
In an unassigned case, the property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.
In an assigned case, the property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obliger is desirable for property/casualty companies that do not want to retain the periodic payment obligation on their books. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.
An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 [3]. Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes. If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.
A structured settlement is a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including: Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlement. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments”. A structured settlement incorporated into a trial judgment is called a “periodic payment judgment”.
Structured Settlements in the United States
The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the Federal Internal Revenue Code. State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Medicaid and Medicare laws and regulations impact structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” the “Special Needs Trusts”.
Injury victims should know that structured settlements are endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities [1] and the National Organization on Disability [2].
Definitions
The United States definition of “structured settlement” for Federal income taxation purposes, found in Internal Revenue Code Section 5891(c)(1), is an "arrangement" that meets the following requirements:
A structured settlement must be established by:
A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2);
or
An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1); and
The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) and must be payable by a person who:
Is a party to the suit or agreement or to a workers' compensation claim; or
By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with Internal Revenue Code Section 130.
Legal Structure
The typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time. The insurer, a property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party which in turn purchases an annuity (which arrangement is called an "assigned case").
In an unassigned case, the property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent (i.e., the obligation to make a payment is contingent on someone continuing to be alive), then the claimant (or whoever is determined to be the measuring life) is named as the annuitant or measuring life under the annuity.
In an assigned case, the property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, will require the property/casualty company to pay it an amount sufficient to enable it to buy an annuity that will fund its newly accepted periodic payment obligation. If the claimant consents to the transfer of the periodic payment obligation (either in the settlement agreement or, failing that, in a special form of qualified assignment known as a qualified assignment and release), the defendant and/or its property/casualty company has no further liability to make the periodic payments. This method of substituting the obliger is desirable for property/casualty companies that do not want to retain the periodic payment obligation on their books. Typically, an assignment company is an affiliate of the life insurance company from which the annuity is purchased.
An assignment is said to be "qualified" if it satisfies the criteria set forth in Internal Revenue Code Section 130 [3]. Qualification of the assignment is important to assignment companies because without it the amount they receive to induce them to accept periodic payment obligations would be considered income for federal income tax purposes. If an assignment qualifies under Section 130, however, the amount received is excluded from the income of the assignment company. This provision of the tax code was enacted to encourage assigned cases; without it, assignment companies would owe federal income taxes but would typically have no source from which to make the payments.
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