by Structured Settlement Watchdog
Lori Forthmann of Los Angeles, CA incorrectly states in a presentation posted online that the "preferential tax treatment for those injured in personal injury and workers compensation case is now a government benefit guaranteed by IRC 5891", as if it the latter were true and just happened.
If Ms. Forthmann had actually read IRC 5891 or was adequately informed, she'd know that at IRC 5891(c)(1)(A) (i) and (ii) that the income tax exclusion for damages in personal injury compensation (long standing for more than 70 years*) is in IRC 104(a)(2). The exclusion for compensation for workers' compensation is also long standing in IRC 104(a)(1). IRC 5891 has only been effective for 7 years and its purpose is to impose an excise tax, with certain exceptions therein stated. Those exceptions apply to structured settlement factoring transactions where the rights to receive structured settlement payments are transferred.
Lori Forthmann, who is neither a member of the National Structured Settlement Trade Association nor the Society of Settlement Planners (according to their websites), but states she is part of Delta Group, has also incorrectly stated the following among the advantages of using structured settlements to self insured companies:
"Secure the release of liability and assign future obligations to a highly rated and secure assignment company".
Let's see, shall we?
Allstate Life non rated shell qualified assignee, guaranteed by annuity issuer
American General Life Insurance Company, non rated shell qualified assignee guaranteed by up stream holding company
John Hancock Life Insurance Company, non rated shell qualified assignee guaranteed by annuity issuer
New York Life Insurance Company, highly rated insurance company as qualified assignee, guaranteed by annuity issuer
Pacific Life and Annuity Company, non rated shell qualified assignment company, guaranteed by holding company
The Prudential Insurance Company of America, non rated shell qualified assignment company guaranteed by annuity issuer. For non qualified cases the non rated non qualified assignment company is subject to a guarantee or agreement to pay from the parent holding company.
Hartford Life Insurance Company, non rated special purpose company guaranteed by annuity issuer and up stream holding company
Liberty Life Assurance of Boston, non rated qualified assignment company backed by annuity issuer
Unless Ms. Forthmann was speaking solely about New York Life (and that is doubtful), her statement is false. None of the shell companies are rated.
The structured settlement, settlement planning, litigation recovery management space IS NOT for part timers. Is it not a reasonable expectation of those that seek financial advice for those that dispense the advice to be financially literate in the subject matter?
*Internal Revenue Code of 1939 §22(b)(5) cite in Taxation of Damages Awards and Settlement Payments Author: Robert W. Wood, published by Tax Institute, San Francisco, CA. also "from its infancy, the Internal Revenue Code has contained an exclusion from taxable income for damages received on account of personal injuries." from Brent B. Nicholson Albany Law Review September 22, 1997 "Recent developments concerning taxation of damages under Section 104(a)(2) of the Internal Revenue Code"