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August 25, 2006

Atty and CPA Get "Incomplete" for Estate Tax Article on Structured Settlements

I just came across an article in the June 2006 Journal of Financial Planning called "Beware of the Estate Tax Trap in Structured Settlements" co-authored by Robert H. Breakstone, JD, LLM and Charles E. Alvis, CPA, PFS which points out certain issues that they believe financial planners should be concerned about. The trap that Breakstone and Alvis opine on should really be called an "Estate liquidity shortage", for fear that there are not enough liquid assets in the Estate to pay the Estate tax, if any (emphasized), that is due. There are different ways of solving this issue, if it exists.

On August 1, 2006 I authored a piece entitled "Estate Taxes and and Structured Settlements" in response to the ongoing debate about the proposed repeal or proposed compromise scale back of the Federal Estate tax. In that article I discussed the now 10 year old concept of a "Commutation Rider " which can be added to a structured settlement at inception that can serve to provide the necessary liquidity at death, if such liquidity is not available from other sources.

If you have these concerns then partner up or work with an experienced settlement professional who is a Certified Structured Settlement Consultant, who deals with structured settlements on a daily basis. For them this is basic stuff!

Potential structured settlement annuitants, attorneys, CPAS and others should not just rush out and buy life insurance to cover the potential estate tax liability from a structured settlement. Concerned annuitants with existing structured settlements should have their financial professionals (1) run a present value calculation of any remaining guaranteed structured settlement payments due them (2) match that up with their other assets in order to calculate what if any estate tax would be due (3) Make sure to project reasonable growth and consumption into the future (4) determine if estate liquidity is in fact a problem (5) determine if the structured settlement has a commutation rider. It wouldve had to have been set up at the time of settlement and would be contained in the beneficiary section of the Settlement Agreement and Release as well as the Qualfied Assignment. There will also likely be a physical rider in the copy of the structured settlement annuity contract (6) assess the overall situation with this information.

Large structured annuities with deferred start dates of over 10 years and long guaranteed beenefit periods, established prior to 1997, are most likely candidates for examination. Commutation riders were available in 1996 but not all structured annuity issuers had them.

Life insurance can still be useful where there is an estate tax liability from a jumbo annuity and no commutation rider is in the contract. Moreover, life insurance will be useful where there is estate tax liability, commutation is not desirable and the beneficiary will want or need to continue to receive periodic payments.

The tax benefit, competitive yield, spendthrift protection and "I know exactly what I'm going to get and when" power of a structured settlement make it a superb vehicle for long term planning and protection of individuals who qualify to receive one.

Posted at 03:30 PM in Attorney Responsibility to Clients in Settlement Planning Process, Non Qualified Assignments, Settlement Planning Issues, Settlement Tax Issues, Structured Settlements |

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Guide to Structured Settlements 2023

  • What is a Structured Settlement? What You Need to Know
    Structured settlements and what you need to know about them including a helpful introductory video featuring 2023 A.M. Best Client Recommended Structured Settlement Expert and Registered Settlement Planner John Darer® of 4structures.com® LLC
  • How Do Structured Settlements Work? How Structured Settlements Work
    How structured settlements work, including 4structures.com LLC's super helpful structured settlement flow chart/diagram showing how structured settlements fit in on the spectrum of settlement planning solutions.
  • Rated Ages and Structured Settlement Cost
    Rated Ages for Structured Settlement Annuities present advantages to all parties. Shift the mortality risk to a life insurance company whose business it it is to assess mortality risk to price its life insurance and annuities. Rated ages boost your structured settlement annuity benefit per premium dollar, or your yield on lifetime payments. Rated ages help to reduce the cost of funding a Medicare Set Aside arrangement where a Structured MSA, is being used { WCMSA LMSA or NFMSA].
  • Structured Settlement Annuity Companies 2023
    Which life insurance companies issue structured settlement annuities going into 2023? A list of current structured annuity issuers, the location of their home offices and their financial ratings from A.M. Best, Moodys, Fitch, Standard & Poors and/or other Tier1 NAIC ratings, with links to their websites and other useful information.
  • Treasury Funded Structured Settlements
    Treasury Funded Structured Settlements are a settlement option for the most conservative using the OTHER permissible qualified funding asset under IRC 130(d), United States Treasury Bonds in addition to, or instead of, structured settlement annuities. Treasury Funded Structured Settlements can also be used to fund installment sales, also known as structured sales and other non qualified structured settlements.
  • Compare Structured Settlement IRR to Other Settlement Alternatives
    Use the Taxable Equivalent Yield chart to help compare the Internal Rate of Return (IRR) of a structured settlement to other alternative or complementary investments. Need help with the chart? Call 4structures.com® LLC at 888-325-8640
  • Structured Settlement Payments | Types of Structured Settlements
    Ways You Can Structure Your Settlement Payments. With a structured settlement you can have more than one type of payment in a single contract. Different types of structured settlement payments can be customized and combined to meet your needs on a stand-alone basis, or in conjunction with other financial products. Diversify your structured settlement, if you wish, by funding with more than one annuity issuer, with treasury funded structured settlements, index linked structured settlement payments and market based structured .
  • Structured Attorney Fees for Tax Deferral for Contingency Fees
    Structured attorney fees is a financial strategy that offers a unique way to defer taxes for lawyers and law firms. Lawyers CAN structure their legal fees even if the plaintiff doesn't structure their settlement. There are multiple ways to structure your attorney fees, such as the an index linked structured settlement where payments are adjusted based on upside changes in the S&P 500 with no downside and a cap of 5%. Trial Lawyers may also use a special deferred pay/deferred compensation arrangement, if market based returns returns are desired with no cap. Plan NOW for year end! Put structured attorney fee expert John Darer® on your settlement planning team.
  • Structured Settlement Annuity Company Customer Service Phone Numbers
    Receiving structured settlement payments from your own structured settlement or inherited structured settlement? You'll like this huge time saver. Click the title for a link to a comprehensive list of customer service telephone numbers that includes both current AND former structured settlement annuity issuers and reinsurers. If you have simple bank or beneficiary changes, or if the insurance company that issued the structured annuity has merged, sold or spun off its block of structured annuity business (e.g. Aviva, Allstate, Transamerica, AEGON, GE Capital, Liberty, CNA, Confederation Life) or changed its name and you're trying to track them down, here you go! The list is regularly updated. Last updated September 14, 2023
  • Structured Settlement Quote Lock-Ins | What You Need To Know
    What does a Structured Settlement Lock-In Mean? How do plaintiffs, defendants and insurers benefit from a structured settlement quote lock in when finalizing a settlement? How does the defendant/insurer/court benefit from using a structured settlement lock-in? Where to be careful when using structured settlement lock ins.
  • What Are Structured Settlement Annuities?
    Structured settlement annuities are annuities that can provide one or more customized annuity payment streams in a single contract. Read about structured settlement annuities here.
  • History of Structured Settlements
    Tracing the roots of structured settlements history from 1918, when Congress exempted damages for personal injury or sickness from income tax, to the establishment of structured settlements as a core personal injury settlement planning tool to the present day.
  • What Are Market Based Structured Settlements?
    Market based structured settlements are an alternative or supplementary structured settlement solution for the plaintiff, attorney or law firm that: 1. Can afford to take some market risk 2. Have discretionary settlement dollars. Claimants and attorneys alike may find that market-based structured settlements provide the opportunity to receive tax-free income, or tax-deferred income, while enjoying growth potential.
  • iStructure |Uncapped Fixed Index Structured Settlement Annuity
    iStructure is an innovative game changing fixed index structured settlement annuity for plaintiffs or attorneys. with an intermediate to long term horizon

Qualified Settlement Funds

  • What is a Qualified Settlement Fund?
    Qualified Settlement Funds | What You Need to Know
  • Firmwide Qualified Settlement Funds Debunked
    Firmwide qualified settlement funds have been heavily promoted to trial lawyers, but have been debunked in a detailed analysis in a July 2022 legal opinion a tax partner at the law firm of Faegre Drinker Biddle & Reath, LLP. Trial lawyers and firms who have established Firmwide QSFs or coinsidering establishing a Firmwide QSF should read the analysis as part of their evaluation.

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