by Structured Settlement Watchdog®
This blog post continues our series about an affiliate website of Settlement Professionals, Inc. that continues to contain major inaccuracies about structured settlements and, in my opinion, presents a mediocre display of knowledge that should be fundamental to the settlement profession or anyone who is giving financial advice.
It's National Financial Literacy month and therefore its totally appropriate that those who hold themselves out as settlement professionals be held to the highest standards when it comes to the fundamental knowledge of the profession.
SPI "Some fifteen years ago Internal Revenue Service created an opportunity for people like yourself, who are about to settle your personal injury lawsuit, to have a portion of the money you receive invested to produce tax free periodic payments".
1. The statute in question was created in 1982 by Congress which would put the age of the text that Kathleen Blevins obviously "cut and pasted" circa 1997. The copyright on the page says 2009...Oops, "you bad!"
Postcript: In 2016 the Blevin's copyright was changed to 2016, but Blevin's numbers STILL don't add up. Instead of 15 years Blevins now has 25 years. 2016 minus 25 years is 1991. That was the year of the demise of First Executive and The Farm's " Groovy Train" was an alternative rock hit, but it definitely wasn't a year that the IRS (or Congress) created an opportunity as described.
2. For the record:
- In the United States, the Congress passes tax laws and requires taxpayers to comply.
- The taxpayer’s role is to understand and meet his or her tax obligations.
- The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share. Source: IRS website
3. A minor point, but I'm going to pile it on because it's just bad English...When you say "people", THEY are not about to settle YOUR personal injury law suit...they are about to settle THEIRS!
SPI "The interest that is earned is never taxed by the IRS because it is viewed as compensation for the injuries that you have suffered. If, however, you receive all of the money from your settlement as one lump sum in cash, and then you later invest it yourself, or with the help of someone else, the interest that you may earn can be taxed at the same rate as income that you earn from your job"
- The IRS does not levy taxes, the United States government does. See Wikipedia Income Tax in the United States
- Structured settlement payments are income tax free provided the payments represent damages excludable under IRC 104(a)(1)-workers compensation or 104(a)(2)-personal injury or sickness
- Blevins inexplicably fails to recognize that investment returns on settlement proceeds invested in mutual funds, stocks real estate may, depending on length of time held, be charcterized as long term capital gains. Long term gains are taxed at a rate that is likely LESS THAN "the rate applied to the income you earn from your job".
SPI- "A structured settlement ensures that you will never lose your money, you will earn high interest rates, and never pay taxes on the interest that is earned.
Comment: A structured settlement is a secure place to place settlement funds. An annuity funded structured settlement is as good as the insurer behind it. While almost 200 banks have failed in the last 2 years, to the best of this author's knowledge, no structured annuity issuer has been taken over by any state insuarace department. A structured settlement which uses United States Treasury obligations as a qualified funding asset has even greater security. That being said, Blevin's statement is inccurate, Blevins herslef later states on the same page "there are a wide array of companies specializing in handling structured settlements accounts, varying in safety, risk, and return.
SPI-"The interest you may earn is taxed in the same way your income from your job is treated".
Comment: See above , regarding capital gains. Depends on what you invest in.
SPI- Can a stockbroker or my bank obtain a structured settlement for me?
"No. A structured settlement can only be set up by an appointed structured settlement consultant. Only he or she is appointed by the life insurance companies to access what are called "settlement annuities" to make the future payments to you".
Comment: Considering that SPI' has a relationship with Robert W. Baird and there are other high profile relationships between the industry and Wall Street, way to keep up on current events!
I'm not making this stuff up readers! I'm just passionate about financial literacy and wish more in the profession would take it seriously.