by John Darer CLU ChFC MSSC CeFT RSP CLTC
What are Structured Settlement Payment Rights?
According to the definition of "structured settlement payment rights" found in the Internal Revenue Code at IRC 5891(c)(2), the term “structured settlement payment rights” means rights to receive payments under a structured settlement.
How Are Structured Settlement Payment Rights Created?
- Structured settlement payment rights are established by contract when a lawsuit is settled and where part of the consideration for the release of the Defendant or Respondent includes an obligation to make future periodic payments.
- In a personal injury settlement, the settling parties execute a Settlement Agreement and Release and then a Qualified Assignment agreement. The latter contract provides for a consented substitution of obligors from the Defendant or its Insurer to the Qualified Assignment Company.
- The Qualified Assignment Company then purchases a qualified funding asset (typically an annuity from a life insurance company) to fund the periodic payment obligation that it has assumed via the Qualified Assignment.
Are Structured Settlement Payment Rights an Annuity?
No, a structured settlement is not an annuity, A structured settlement obligation may be funded with an annuity but the structured settlement itself is not an annuity. This is a fundamental and important distinction for anyone seeking to invest in structured settlement payment rights.
What is a Structured Settlement Factoring Transaction?
According to the definition of "structured settlement payment rights" found in the Internal Revenue Code at IRC 5891(c)(3)(A), the term “structured settlement factoring transaction” means a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration.
Food for Thought
- If a structured settlement were an annuity (it isn't), why would you need to fund it with an annuity?
- If a structured settlement factoring transaction is transferring structured settlement payment rights (including portions of structured settlement payments), then whose magic wand makes it an annuity, as that term is defined under state insurance law?
- Why would an investment salesperson, including certain settlement planners call structured settlement payment rights an annuity, in advertising, or in a sworn affidavit to a court, when it's not an annuity?
- Does it make sense to entrust your money with an investment salesperson or settlement planner who "misgenders" a financial instrument?
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