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August 03, 2021

Are Structured Settlements Tax Free Annuities? Are Structured Settlements Annuities?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

A common misconception about structured settlements is that structured settlements are annuities. 

  • Structured settlements are not annuities. 
  • Structured Structured settlements settlements are a form of settlement that may be partially funded with annuities, although they are not always funded with annuities.

Unfortunately the misconception is being proliferated by firms that should know better. What a pity!

Just Because They Say They Are Doesn't Mean They Are

Here are some examples of misinformation about structured settlements from a Google search performed on July 31, 2021: 

  • "Structured settlements are tax-free annuities that provide payment options to the Claimant"  New York structured settlement broker website
  • "All structured settlements are annuities..."  and "Structured settlements are annuities" Structured Settlement factoring company..."  associated with New York settlement planner. The same settlement planner refers to " investment backed structured settlements" in a November 2020 blog.
  • "In fact, a structured settlement is an annuity"  Boston area structured settlement broker
  • "Structured settlements are annuities that receive special tax treatment" Florida Special Needs Law Firm website
  • " A structured settlement is an annuity.." NJ  Elder Law Firm
  • " A structured settlement is an annuity"  Las Vegas personal injury law firm
  • " A structured settlement is an annuity"  Boston personal injury law firm
  • " A structured settlement is an annuity contract..."  Workers Comp Help
  • " A structured settlement is an annuity" Bellevue WA personal injury law firm
  • "Structured settlements are annuities"   Insurer 10-K

from which is borne a litany of misinformation by structured settlement factoring companies, tertiary market companies, financial advisors sourcing from secondary market and tertiary market companies and lead generators for such companies  [ all below as of August 3, 2021]

  • "Structured settlements are annuities awarded as recompense in a civil lawsuit"  CBC Settlement Funding in the Conshohocken PA based JG Wentworth spinoff's  tediously titled "Tax Implications of Structured Settlements Implications"
  • " A structured settlement is an annuity" AnnuityExpertAdvice.com 
  • " A structured settlement is an annuity awarded to a plaintiff..." and " Investors can have  peace of mind that their investment is safe when they purchase these types of annuities  Totalstructuredsettlements.com  [ the trifecta of B.S.  (1) structured settlement is not an annuity; (2) structured settlements are not awarded (that's why it's called a settlement); and (3) investors in other people's structured settlement payments are not buying an annuity

Structured settlements are not funded by tax-free annuities

You can't simply buy a structured settlement annuity and receive payments tax-free.  Actually a plaintiff or claimant cannot buy a structured settlement annuity at all.  How Structured Settlements Work | Structured Settlements Explained (4structures.com)

Any tax benefit that may be realized on the payments is because of a settlement agreement that sets forth a periodic payment obligation and the nature of damages that the payments represent.

According to IRC 5891(c)(1), the term " structured settlement means an arrangement—

(A) which is established by—"
   ( i) suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2), or
   (ii) agreement for the periodic payment of compensation under any workers’ compensation law excludable from the gross income of the recipient under section 104(a)(1), and
(B) under which the periodic payments are—
   (i) of the character described in subparagraphs (A) and (B) of section 130(c)(2), and
  (ii) payable by a person who is a party to the suit or agreement or to the workers’ compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with section 130.
 

The firm that made the misrepresentation about being funded with tax-free annuities knows better, but their messaging does not show this.  Greater care should be taken before publishing.

 
Unfortunately it is reasonably foreseeable that careless misinformation will be picked up by writers and researchers for structured settlement cash now companies who then spread the information further. That is not in consumers' best interest. That's why this needs to be called out, in my opinion.
 
  • The National Structured Settlements Trade Association states that ""structured settlements are an innovative and proven method of compensating injured plaintiffs in legal settlements".
  • The Internal Revenue Service states "Structured settlements are settlements of tort claims involving physical injuries or physical sickness, and workers' compensation claims, under which settlement proceeds take the form of periodic payments, including scheduled lump sum payments.  [  IRS Structured Settlement Factoring Audit Guide]
 

Posted at 04:08 PM in Albany New York Structured Settlements, Annuity FAQ, Bowling Green Kentucky Structured Settlements, Bridgeport Structured Settlements, Bronx New York Structured Settlements, Brooklyn New York Structured Settlements, Conshohocken Structured Settlements, Detroit Michigan Structured Settlements, Hartford CT Structured Settlements, IRC 5891 Structured Settlement Factoring Transaction, Lexington KY Structured Settlements, Long Island NY Structured Settlements, Los Angeles CA Structured Settlements, NC Structured Settlements, New Jersey Structured Settlements, New Orleans Louisiana Structured Settlements, New York Personal Injury, New York Settlement Planning, New York Structured Settlements, Newburgh Structured Settlements, NJ Structured Settlements, North Carolina Structured Settlements, Oklahoma Structured Settlements, Palm Beach Structured Settlements, Philadelphia PA Structured Settlements, Rhode Island Structured Settlements, Rochester Structured Settlements, Sacramento Structured Settlements, San Francisco Structured Settlements, Santa Monica Structured Settlements, Sarasota Structured Settlements, Settlements in Queens County New York, South Carolina Structured Settlements, St. Louis Structured Settlements, Structured Settlement Watchdog®, Structured Settlements Florida, Structured Settlements in Florida, Structured Settlements in Fresno County, Structured Settlements in Kentucky, Structured Settlements in Louisiana, Structured Settlements in Maryland, Structured Settlements in Michigan, Structured Settlements in Nassau County, NY, Syracuse Structured Settlements, Tulsa Structured Settlements, TX structured settlements, VA Structured Settlements, Washington Structured Settlements, White Plains Structured Settlements, WV Structured Settlements |

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Guide to Structured Settlements 2025

  • What is a Structured Settlement? What You Need to Know
    Structured settlements and what you need to know about them including a helpful introductory video featuring A.M. Best Client Recommended Structured Settlement Expert and Registered Settlement Planner John Darer of 4structures.com LLC
  • How Do Structured Settlements Work? How Structured Settlements Work
    How structured settlements work, including 4structures.com LLC's super helpful structured settlement flow chart/diagram showing how structured settlements fit in on the spectrum of settlement planning solutions.
  • Rated Ages and Structured Settlement Cost
    Rated Ages for Structured Settlement Annuities present advantages to all parties. Shift the mortality risk to a life insurance company which specializes in assessing mortality risk to price its life insurance and annuity products. Rated ages boost your structured settlement annuity benefit per premium dollar, or your yield on lifetime payments. Rated ages help to reduce the cost of funding a Medicare Set Aside arrangement where a Structured MSA, is being used [WCMSA, LMSA or NFMSA].
  • Top Structured Settlement Annuity Companies 2025
    Which life insurance companies issue structured settlement annuities in 2025? A list of current structured annuity issuers, the location of their home offices and their financial ratings from A.M. Best, Moodys, Fitch, Standard & Poors and/or other Tier1 NAIC ratings, with links to their websites and other useful information. Last updated November 3, 2024
  • Treasury Funded Structured Settlements
    Treasury Funded Structured Settlements are a settlement option for the most conservative using the OTHER permissible qualified funding asset under IRC 130(d), United States Treasury Bonds in addition to, or instead of, structured settlement annuities. Treasury Funded Structured Settlements can also be used to fund installment sales, also known as structured sales and other non qualified structured settlements.
  • Compare Structured Settlement IRR to Other Settlement Alternatives
    Use the Taxable Equivalent Yield chart to help compare the Internal Rate of Return (IRR) of a structured settlement to other alternative or complementary investments. Need help with the chart? Call 4structures.com® LLC at 888-325-8640
  • Structured Settlement Payments | Types of Structured Settlements 2025
    In 2025, you can structure your settlement payments in various ways. A structured settlement allows for multiple payment types within one agreement. You can tailor and merge different structured settlement payments to suit your individual needs, either alone or alongside other financial instruments. If desired, diversify your structured settlement by utilizing multiple annuity issuers, treasury-funded structured settlements, index-linked structured settlement payments, and market-based structured options.
  • Structured Attorney Fees for Tax Deferral for Attorney Contingency Fees
    Structured attorney fees offer a financial strategy that provides a unique method for deferring taxes for attorneys and their firms. Attorneys can structure or defer their legal fees independently of whether the plaintiff structures their settlement. There are various ways to structure attorney fees, including capped or uncapped index-linked structured settlement annuities with payments adjusted according to the S&P 500 or another index's positive changes. Trial lawyers might also opt for a special deferred payment/compensation arrangement if they seek market-based returns without a cap. As the year-end approaches, consider adding structured attorney fee specialist John Darer® to your settlement planning team for 2025.
  • Structured Settlement Annuity Company Customer Service Phone Numbers
    Receiving structured settlement payments from your own structured settlement or inherited structured settlement? You'll like this huge time saver. Click the title for a link to a comprehensive list of customer service telephone numbers that includes both current AND former structured settlement annuity issuers and reinsurers. If you have simple bank or beneficiary changes, or if the insurance company that issued the structured annuity has merged, sold or spun off its block of structured annuity business (e.g. Aviva, Allstate, Transamerica, AEGON, GE Capital, Liberty, CNA, Confederation Life), oran annuity issuer has changed its name and you're trying to track them down. Here you go! The list is regularly updated. Last updated December 9, 2024.
  • Structured Settlement Quote Lock-Ins | What You Need To Know
    What does a Structured Settlement Lock-In Mean? How do plaintiffs, defendants and insurers benefit from a structured settlement quote lock in when finalizing a settlement? How does the defendant/insurer/court benefit from using a structured settlement lock-in? Where to be careful when using structured settlement lock ins.
  • What Are Structured Settlement Annuities?
    Structured settlement annuities are annuities that can provide one or more customized annuity payment streams in a single contract. Read about structured settlement annuities here.
  • History of Structured Settlements
    Tracing the roots of structured settlements history from 1918, when Congress exempted damages for personal injury or sickness from income tax, to the establishment of structured settlements as a core personal injury settlement planning tool to the present day.
  • What Are Market Based Structured Settlements?
    Market based structured settlements are an alternative or supplementary structured settlement solution for the plaintiff, attorney or law firm that: 1. Can afford to take some market risk 2. Have discretionary settlement dollars. Claimants and attorneys alike may find that market-based structured settlements provide the opportunity to receive tax-free income, or tax-deferred income, while enjoying growth potential.
  • iStructure |Uncapped Fixed Index Structured Settlement Annuity
    iStructure is an innovative game changing fixed index structured settlement annuity for plaintiffs or attorneys. with an intermediate to long term horizon
  • Structured Settlements and Longevity Risk| What Are the Odds?
    Do your financial resources give you enough road, or will the road run out before you do? A structured settlement annuity helps mitigate the risk of outliving your savings, no matter how long you live. A structured settlement can include one or more customized payment streams and types.

Qualified Settlement Funds

  • What is a Qualified Settlement Fund?
    Qualified Settlement Funds | What You Need to Know
  • Firmwide Qualified Settlement Funds Debunked
    Firmwide qualified settlement funds have been heavily promoted to trial lawyers, but have been debunked in a detailed analysis in a July 2022 legal opinion a tax partner at the law firm of Faegre Drinker Biddle & Reath, LLP. Trial lawyers and firms who have established Firmwide QSFs or coinsidering establishing a Firmwide QSF should read the analysis as part of their evaluation.

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    with a stable readership that seeks credible structured settlement information, John Darer Reviews, commentary and/or opinion about topical issues related to settlement planning, targeted to lawyers, injured persons and their family members, guardians, survivors, judges, magistrates, special masters, mediators, administrators, trust companies, insurance company executives and adjusters, financial advisers, settlement professionals, financial professionals, insurance regulators, government leaders, federal and state law enforcement, buyers and sellers of structured settlement payment rights, the news media and other interested parties. 4structures.com LLC established this structured settlement blog in 2005. John Darer ®, CLU ChFC MSSC CeFT® RSP CLTC, President of 4structures.com, located in Stamford, CT 06902. John Darer is an experienced New York City area structured settlement expert, structured settlement broker, Certified Financial Transitionist, and Registered Settlement Planner. He holds insurance licenses in 45 states, has 41 years financial services experience and 31 years in the structured settlements and settlement planning space. In his capacity as a investigative journalist and commentator, and professionally, John Darer passionately believes that shining the light on a business practice is both healthy and newsworthy. It is in the best interest of injury victims, their families and their legal advisers, that the settlement planning discussion involve those that are properly trained in the topic, properly informed on the topic and, with respect to structured settlements, properly licensed and/or appointed. It has significant instructional and deterrent value to other practitioners and firms as well as those who may be caught in the cross hairs. WHAT YOU GET here is the straight stuff with a touch of irreverence and humor. We hope you enjoy and find the content to be helpful. Subscribe to the structured settlement blog feed, or a specific category feed through your blog reader, or through the Subscribe button at the top left of this page. Followers of JDDarer™ on Twitter may also receive select content. If you would like to speak with John he can be reached at (888)325-8640 Thank you for reading! Last updated July 10, 2024

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Structured Settlement Best Practices Corner

  • New York Insurance Advertising law requires the full name of the Insurer to be listed along with the city and state of the principal office. Stating that you represent these fine companies using Insurance company logos without the preceding information are also illegal
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  • Most states require that Testimonials represent the CURRENT opinion of the person who made the testimonial. Be prepared to back it up.
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Why Take a Structured Settlement?

  • A structured settlement offers guaranteed financial security to personal injury victims, wrongful death survivors and their families. A structured settlement involves a customized stream of payments, provides long-term stable tax-free income, for a period of years or a lifetime. Unlike other income annuities. a structured settlement annuity can have multiple payment streams to address multiple needs in a single contract.

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