by John Darer® CLU ChFC MSSC RSP CLTC
Structured settlements are intended to provide core financial stability to those who have suffered personal physical injury to themselves or loved ones, wrongful death or workers compensation. IRC 5891 and the state structured settlement protection acts are intended to provide an orderly process to obtain liquidity from structured settlements in hardship situations or when circumstances change and there are no other alternatives. Sounds good in theory and is the reality in many cases in practice. But it's not all good with respect to structured settlement protections.
Inadequate Checks and Balances in the Current Structured Settlement Protection Laws to Avoid "Recidivism"
While some say that less than 10% of structured settlement annuitants later enter into a structured settlement factoring transaction, those that do engage in multiple transactions, often within a relatively short time period. The current system of structured settlement protection, lacks nationally consistent checks and balances to assure that a selling annuitant spends the money on what they said they needed it for in the petition for structured settlement transfer.
Selling Structured Settlement Payments Comes With a Very High Cost
Because the sale of structured settlement payments rights often comes at a very high cost, it follows that a rat-a-tat sequence of sales is not a good outcome for the annuitant and adds significant costs.
Based on observations and stories that annuitants are being solicited to sell more than they need and that reasons for transfer in affidavits prepared by structured settlement purchasers and/or their attorneys may be "manufactured", it is important to protect the most at-risk of annuitants from the "structured settlement factoring slaughterhouse". I recently spoke with someone who sold for the second time last year with the proceeds were in excess of $200,000, with almost double that sacrificed in stable income, and the money is all gone less than a year later.
Escrow Account for Structured Settlement Factoring Proceeds With Disbursements Going Direct to Vendor
One of my trusted contacts in the structured settlement secondary market recently told me of a clever state court judge who insisted that the proceeds of a structured settlement transfer go into an escrow account (not controlled by the settlement purchaser), or the Registry of the Court, and that the funds would be released only to the vendor of the product or service that the annuitant stated they needed in their affidavit in the petition to transfer upon presentation of a valid invoice. Food for thought.