John Darer Reviews Forbes Advisors' " What is a Structured Settlement?" | The Canard of the Week

by Structured Settlement Watchdog

Christy Bieber JD and her Reviewer Mike Cetera win the Canard of the Week for this recently discovered "Fupped Duck" that purports to be about structured settelments, from about 6 months ago. 

A. What Is a Structured Settlement and How Do They Work?

Bieber

How Do You Get a Structured Settlement?

• Both parties must agree to the terms.  True
• The settlement is submitted to the court for approval   Not Always
• Becomes effective once the judgment is signed by the court.  Not true

Where is it "Fupped Duck"?

• A judgment is not a settlement
• Only certain settlements require a structured settlement to be approved by the court. For example a settlement involving a minor, an incompetent, or where there is a distributon from a wrongful death case where the decedent had no will and died intestate.

B. How Do Structured Settlements Work?

Bieber 

"The plaintiff and defendant will need to agree on the terms of the structured settlement, including when and how money will be paid out and how long the payments will last. The defendant will then make periodic payments according to the agreed upon terms or will purchase an annuity from an insurance company that makes the agreed upon payments. The plaintiff then receives payments according to the terms of the settlement or the annuity. This provides guaranteed income or compensation to the plaintiff and fully resolves the lawsuit".

Where is it "Fupped Duck"?

Bieber completedly skips the qualified assignment step which is embodied in the majority of structured settlements today and, as it just so happens, for the last four decades or so.

For more information on how structured settlements work please visit  How Structured Settlements Work | Structured Settlements Explained (4structures.com)

C. Types of Structured Settlement Cases

Bieber

"Structured settlements can be available in any type of legal case where a plaintiff is awarded damages by a defendant". 

Where is it " Fupped Duck"?

Do defendants award damages?  Well I didn't go to law school and this is just basic schmutz  you learn in law school and that you should know! Good Grief! I checked and according to Columbia Law School, you learn about damages as a 1L law student. At UCLA it's a bit later in terms of remedies (and I'm not referring to "Plop Plop Fizz Fizz")

D.The Structured Settlement Process

Says Bieber (and the Reviewer)

"the structured settlement process works as follows:

• An accident victim pursues a claim against a defendant that is settled
• The parties agree on compensation as a structured settlement
• The plaintiff releases the defendant from further liability as part of the settlement agreement
• The defendant funds the settlement
• If the defendant purchases an annuity from a life insurance company, it will begin making payments

In most cases, it is best for both the plaintiff and defendant if the defendant purchases an annuity from an insurance company. The plaintiff benefits by not having to rely on the continued financial viability of the defendant. And the defendant benefits from getting this ongoing obligation off their books and being able to move on".

Where's it "Fupped Duck"?

Bieber's explanation is really "fupped duck".  

1. If someone is a Defendant, then there has been a lawsuit filed. So it would be a lawsuit settlement. Otherwise we would be talking about a Claimant-Respondent scenario.  See What's the Difference between Plaintiff or Claimant, Defendant or Respondent? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
2. Even if there is a structured settlement there is often a cash component.
3. A defendant, who wishes to purchase and hold a structured settlement annuity would be highly unsual. The Defendant in such case would remain contingently liable for the performance of the annuity issuer. Simply buying an annuity doe snot get the liability off their books. Most structured settlements involve  a qualified assignment in which the obligation to make future periodic payments to the plaintiff or payee is assigned to a  qualified assignment company. It is the qualified assignment company that takes on the periodic payment obligation, receives fudning from the Defendant or Defendant's insurer and which buys the structured settlement annuty to fund the obligation.
4. Only insurance companies issue annuities subject to insurance laws in the applicable state.  Furthermore please refer to Internal Reveneue Code I.R.C. § 130(d) Qualified Funding Asset —  which expressly states

 "For purposes of this section, the term “qualified funding asset” means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if—

I.R.C. § 130(d)(1) — 

such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,

I.R.C. § 130(d)(2) — 

the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,

I.R.C. § 130(d)(3) — 

such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and

I.R.C. § 130(d)(4) — 

such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment".

E. Taxation of Structured Settlements

While the money from the settlement is tax exempt, if the plaintiff invests the money from the settlement, interest earned could be taxed. However, the rules are different for plaintiffs who receive a structured settlement as an annuity. The principal and interest received are generally tax exempt in this situation.

Why is it " Fupped Duck"?

1. Internal Reveneue Code I.R.C. § 130(d) Qualified Funding Asset —  which expressly states

"For purposes of this section, the term “qualified funding asset” means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States

 

Helpful reading  Structured Settlements | Tax Benefits of Structured Settlements (4structures.com)