by John Darer® CLU ChFC MSSC RSP CLTC
What is Destructive Receipt?
If a General Release has been signed and delivered to the defendant's legal representative, the tax benefits of a structured settlement may be lost. The ramifications may be costly for both the plaintiff his or her lawyers. Constructive Receipt is "destructive receipt" from a financial standpoint.
Why Would a General Release Be Fatal to a Structured Settlement?
A standard general release fails to satisfy the requirements to establish a structured settlement because of the fatal words "receipt of which is hereby acknowledged". Even though money has not yet changed hands constructive receipt has occurred. Where constructive receipt has occurred in a case involving taxable damages such as an employment or commercial damage case, there is potential for tremendous tax exposure that could have been easily avoided and a potential malpractice exposure for the attorney.
A promise to pay future periodic payments to establish a periodic payment obligation is a critical component to establish a structured settlement, regardless of whether the structured settlement is (1) qualified (medical malpractice, wrongful death, workers compensation, auto, product liability involving damages on account of personal physical injury or physical sickness); or (2) non qualified structured settlements (wrongful termination, harassment in the workplace, discrimination in workplace, intellectual property and other commercial claims. Even in mass torts where a qualified settlement fund has been established to aggregate settlement money in a big pot for claimants similarly situated, an obligation to pay on the part of the QSF is a critical component of the establishment of a structured settlement.