by Structured Settlement Watchdog
A Fort Lee New Jersey personal injury law firm asks, " What Are the Negative Aspects of a Structured Settlement?" Its response to its own question falls a bit short.
Here is my response to the Fort Lee personal injury firm's 3 purported claims
What Are the Negative Aspects of a Structured Settlement?
- These settlements may have some exceptions of the tax rule, meaning that punitive damages and some attorney’s fees may be taxed.
Punitive damages are not a negative aspect of structured settlements. Punitive damages are not a negative aspect of settlements if you're the plaintiff. Attorney fees are not a negative aspect of structured settlements. Attorney fees are payable whether or not there is a structured settlement.
A structured settlement is defined under the Internal Revenue Code. Where payments represent damages on account of physical injury or physical sickness, wrongful death, wrongful incarceration, claims for workers compensation the plaintiff/claimant receives payments income tax free. [ See IRC Sections 104(a)(1), 104(a)(2), 130, 139F] Read about the Tax Benefits of Structured Settlements
Claims for taxable damages such as punitive damages, interest on judgment and so on, may benefit from a non-qualified structured settlement. These are tax deferred periodic payment solutions. Where there are taxable damages such as punitive damages or judgment interest, attorney fees on certain taxable damages, a plaintiff attorney ought to engage a settlement planner and consider employing a two-pronged approach, with a Plaintiff Recovery Trust as well as a tax deferred non qualified structured settlement to help mitigate current taxes and maximize the client's net recovery. Read about Plaintiff Recovery Trust
Attorneys may benefit from structured attorney fees or attorney fee deferred compensation. An attorney may defer well in excess of the limits of qualified pension plans. In fact, there are many options for attorneys. Read about Attorney Fee Deferrals and Structured Attorney Fees and Non-Qualified Assignments
2. Unknown changes in the economy could lead to a sudden, drastic change in payments and a plaintiff may receive less.
If you invest in stocks, you can lose value in a minute. People go into structured settlements for safety and income certainty. Insurers are highly regulated, must maintain reserves that are annually audited in each state in which they do business. 5 companies that currently write structured settlement annuities have been in business since the 19th Century. Modern index linked structured settlement annuities offer options that provide upside potential with downside protection.
The 2012 Executive Life of New York liquidation was an instance where there was a reduction in benefits. It was far from sudden. It was well known in the mid 1980s that ELNY priced very aggressively and that its qualified assignment company had at one time 40% of its assets in junk bonds. I've studied and written about it extensively. See for example, Lessons to be Learned from Eric Yerkes v Cessna and Yerkes v Anapol Weiss
3. Insurance companies are sometimes reluctant to disclose how much they would have to pay to buy an annuity to cover the settlement, which means that an attorney can’t make a complete assessment of the benefits of the offer.
All the more reason for plaintiff lawyers to work with a settlement planner. It's so easy to find out the cost. This talking point is nearly 40-year-old relic of a time of the "urban legend" that knowledge of the cost of a structured settlement would trigger a taxable event. For a comprehensive write up, please see my February 5, 2010 blog Disclosure of Structured Annuity Cost by Defendant Is Not Constructive Receipt - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
There is more to settlement planning than a structured settlement. A plaintiff attorney should be engaging a settlement planner to (at the very least) price out the cost of the plaintiff's needs. Advocate from a position of knowledge. Avoid reacting from a position of the unknown. What is Settlement Planning?