by John Darer CLU ChFC CSSC
A publication called "Structured Settlements Guide" continues to post misinformation about structured settlements.
Structured Settlements Guide Misinformation-1
"If you were involved in an accident at work, been involved in an automobile accident, or a wrongful death case and won that lawsuit then you were awarded a settlement. If the amount was small it would have been awarded to you in a lump sum. If it was a rather large amount then it would be awarded to you in a Structured Settlement".
- Critical Mistatement of Fact: You cannot be awarded a settlement
- Structured settlements are the result of a compromise not an award. Even if the structured settlement is agreed to post verdict the fact remains that it is because parties have decided to resolve their differences rather than continue the litigation.
- Structured settlements are entered into on all sizes of cases.
Structured Settlements Guide Misinformation-2
Roughly 20 years or so ago if you had won a lawsuit the cash payout was in the form of a lump sum. It was felt by many that the injured plaintiff would wisely invest that money so they would have an income for the rest of their lives. As it turns out that was not the case in several situations. Therefore, lawmakers decided that large sums would be distributed on a periodic basis; monthly, quarterly, annually etc. etc. An agreement was made between the injured party (plaintiff) the lawyers (for both sides) a Financial advisor and the defendant. It then had to be determined how the payments would be distributed and this was called Structured Settlement Annuity.
- If you win a lawsuit many cases are still being paid in the form of a lump sum.
- In enacting the Periodic Payment Settlement Act of 1982, lawmakers created tax and other incentives for parties to enter into structured settlements as good public policy. They did not not mandate structured settlements. Some states, such as New York, have periodic payment of judgements, but these are not settlements.
- Structured settlement involves an agreement between at least two parties, the defendant and/or its insurer and the claimant or plaintiff. The financial advisor IS NOT a party to the settlement agreement.
- A structured settlement annuity is a contract issued by an insurance company that sets forth the benefits the annuity issuer is contracted to pay. In a display of woeful lack of comprehension the author of the Structured Settlement Guide suggests a sequence in which step 1 is an agreement made between the plaintiff, lawyers fro both sides, the defendant and the financial advisor; Step 2 is a determination of how paymenst are to be distributed and he/she calls step 2 a structured settlement annuity.
Structured Settlements Guide Misinformation-3
Structured Settlement Annuity:
The defendant in large cash sum cases would purchase an annuity for the distribution of funds through an Insurance Company. This distribution then allows for the plaintiff or beneficiary to live off the proceeds for the duration specified or for the duration of recovery
- If there is a cash sum of any size there can be no structured settlement, unless such sum is part of the consideration for a case resolved by way of a qualified settlement fund under IRC 468B.
- Generally, the parties must agree to periodic payments in order for there to be a structured settlement.