by John Darer® CLU ChFC MSSC RSP CLTC
One often reads the advertising claims that structured settlement payments are "tax free". Such statements are misleading.
1. To the extent a structured settlement payment represents payment of damages for personal physical injury or physical sickness, or payment for a worker sompensation claim, they are received by the tax payer INCOME tax free. The relevant sections of the Internal Revenue Code are IRC 104(a)(1) and 104(a)(2)
2. Technically an estate is subject to tax, not a structured settlement.
3. At the death of the annuitant IF, and only if, there are any guaranteed certain payments remaining to be paid in the future, the present value of such payments is included in the decedent's estate along with other items such as the value of bank accounts, stocks etc. On a very basic level, if the total of such items exceeds the exempt amount then an estate tax would be due. Exemptions apply on both a state and federal level.
4. There are techniques available to reduce or mitigate estate tax.
For more information about estate planning and your settlement, please contact structured settlement expert John Darer at 888-325-8640