by John Darer CLU ChFC CSSC RSP CLTC
Rising interest rates should bring increased interest in structured settlements and other periodic payment solutions.
Daily Rates are more likely to be available. Look at what is happening with Treasury Rates (below). The return of yields in the under 10 year range, makes structures for durations under 10 years more attractive.
It also bodes well for structuring attorney fees and structured installment sales where some payees desire shorter payment streams.
5 year Treasury
08/19/2013 5 year UST 1.61%
08/15/2013 5 year UST 1.54%
01/01/2013 5 year UST 0.72%
08/31/2012 5 year UST 0.59
10 Year Treasury
08/19/2013 10 Year UST 2.90%*
08/15/2013 10 year UST 2.77%
08/31/2012 10 Year UST 1.57%
The 10 year US treasury at time of writing exceeeds the comparable yield on treasuries for Germany, Britain, France,Japan, Switzerland Hong Kong, Singapore and the Netherlands.
Source: US Treasury H15 Rates and Bloomberg.com
* at or about 315pm EDT on August 19, 2013.
While structured settlements funded with annuities generally have higher yields than US Treasuries, following such rates is helpful. Some structured settlements can be funded with United States Treasury obligations with a similar tax exempt status if the structured settllements represent damages for physical injury, physical sickness, wrongful death or workers compensation. [see IRC Section 104(a)]
Where there is a delay in producing executable settlement documents, care should be taken to lock-in annuity rates when absolutely necessary.
An example of where a lock in is necessary might be where court approval of the settlement is required and the court needs to see the exact benefits that a minor payee will be receiving from the structured settlement as part of its review. However if, for example, the plaintiff or defense attorney have a busy schedule that results in a delay in producing the final documents caution should be taken before locking in benefits in a rising environment.
Treasury Funded Structured Settlements cannot be locked in. The nature of the payment stream is pre-determined by the parties, but the final amounts cannot be precisely deternmined until there is "good order".
[for more information see Structured Settlement Rate Lock-in | A Critically Important Tool]