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Structured Settlement Liquidity | Can You Sell Structured Settlement?

by Structured Settlement Watchdog®

To highlight the issue let's start with an adaptation of the classic courtroom interchange between Lieutenant Lionel Caffey and Colonel Nathan Jessup from "A Few Good Men":

Structured Settlement Website: You Want Answers?

Plaintiff: I think I'm Entitled

Structured Settlement Website: You Want Answers?

Plaintiff Attorney: I want the Truth!

Structured Settlement Website: You Can't Handle the Truth!

A structured settlement industry website presents the following as facts:

"Can I restructure my payments into a lump sum? THEN ANSWERS

Again, the federal law that assures the payments you receive are on a tax-free basis, also prohibits converting your payments into a lump sum."

The series of Q&As on the websites also provides further inaccuracy:

"...the federal law designed to provide these benefits to you on an income tax-free basis also prohibits you from assigning or encumbering them".

Comments

1. A structured settlement is generally considered to be a series of periodic payments, although some structured settlements may be a single lump sum.
2. The proper phrasing of the question should be "May a structured settlement, or part of a structured settlement, be commuted, or reduced to a lump sum payment?
3. Federal law DOES NOT prohibit the transfer or sale of your right to receive periodic payments from a structured settlement for a cash lump sum.
4. A body of Federal and state laws govern what is known as a structured settlement factoring transaction.
5. In enacting the Victims of TerrorismTax Relief Act of 2001, which created Internal Revenue Code Section 5891 , Congress expressly acknowledged the existence of "structured settlement factoring transactions" by defining such term at IRC 5891(c)(3)(A) and establishing requirements for the purchaser to avoid an onerous 40% excise tax on the "factoring discount" in such transactions.
6.  Such requirements include that the transfer of structured settlement payment rights be approved in advance in a qualified order. that is issued—
   (i) under the authority of an applicable State statute by an applicable State court, or
   (ii) by the responsible administrative authority (if any) which has exclusive jurisdiction over the underlying action or proceeding which was resolved by means of the structured settlement.(see IRC 5891(b)(2)(A) and (B)
7. The United States Internal Revenue Code defines the term “structured settlement factoring transaction” as 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.

WARNING

• A sell structured settlement factoring transaction IS NOT recommended UNLESS you have a well defined essential need and have exhausted all other sources to raise cash.

• Speak to a credentialed financial professional well versed in structured settlements andyour lawyer for guidance.

• The lawyer handling a structured settlement transfer petition works for the settlement purchaser.
• Read the disclosure carefully and do not waive independent professional advice
  

 

 

 

 

 

Qualified Assignments 101, What is a Qualified Assignment?

by John Darer ® CLU ChFC MSSC CeFT® RSP CLTC

What is a qualified assignment?

A qualified assignment is a transfer of a contractual obligation to make future periodic payments under a settlement agreement, which satisfies the requirements of Internal Revenue Code (IRC) §130. In a structured settlement agreement the original obligor (the defendant, insurance carrier for the defendant, or the trustee of a IRC 468B qualified settlement fund, assigns its obligation to make the future periodic payments defined in the settlement agreement to a "qualified assignment company".

Only payments which represent damages for personal injury, physical sickness, wrongful death and payments for workers compensation may be assigned by way of a qualified assignment.

Generally a qualified assignment company is a special purpose company, which does little more than hold an annuity or United States Treasury obligations as a "qualified funding asset" to back up the obligations it assumes from Defendants, Insurers or qualified settlement fund trustee. A qualified assignment company may actually be an insurance company itself. When an annuity is used as a qualified funding asset, the qualified assignment company is usually related to the life insurance company issuing the structured settlement annuity. In such cases, the qualified assignment company typically purchases an annuity from the related life insurance company as a qualified funding asset pursuant to IRC 130(d).

A qualified assignment requires the plaintiff's consent.

The answer to the question "what is a qualified assignment" should be fundamental knowledge to ALL competent structured settlement consultants and users of structured settlements. It is a pity to see misinformation occasionally posted on the websites of some settlement consultants, or others, which state incorrectly (see below) that the qualified assignment is "to a financially secure insurance company", or "an assignment to the life company".

To wit... "From the plaintiff’s perspective, an assignment to a financially secure insurance company gives them the assurance that future payments will be made as promised. For many plaintiffs, this assignment to the life company alleviates the stress of future contact with the defendant, their insurer, or any party responsible for the injury"- quote from the  website of a veteran settlement consultant at time of original publication.

Of the primary companies offering structured settlements only the qualified assignment facility used by New York Life (New York Life Insurance and Annuity Corporation) is an insurance company. The qualified assignment companies of United States Life Insurance Company in the City of New York (including the former American International Life Assurance Company of New York), American General Life Insurance Company,  First Berkshire Hathaway Life Insurance Company, Berkshire Hathaway Life Insurance Company of Nebraska, Independent Life Insurance Company, Pacific Life Insurance Company,  Pacific Life & Annuity Company, Metropolitan Life Insurance Company,  Metropolitan Tower Life Insurance Company, The Prudential Insurance Company of America, United of Omaha Life Insurance Company and (i.e. the majority) ARE NOT life insurance companies or even insurance companies for that matter**.

Last updated December 5, 2022

 

 

 

 

Scott Rothstein "Structured Settlement Investment Fraud" Wasn't a Structured Settlement

by John Darer CLU ChFC CSSC RSP

The following press release was issued November 12, 2009 by the FBI and IRS concerning Scott Rothstein:

"The Miami Division of the Federal Bureau of Investigation (FBI) and the Miami Field Office of the Internal Revenue Service (IRS) are seeking information from individuals who have invested in the Rothstein Structured Settlement Investment (RSSI) or from individuals who have information that would be helpful to the investigation. To facilitate information gathering, the FBI has established a dedicated e-mail address and an informational telephone line 1-800-CALL-FBI, "Rothstein Option."

Details of the investigation cannot be discussed at this time, as the investigation is ongoing. However, the FBI and IRS are seeking to identify victims and to obtain any information to determine the extent of any potential fraud.

In an effort to determine the scope of the matter and the amount of losses that may be involved, investigators are requesting that individuals provide:

• Basic contact information (name, address, telephone numbers, e-mail address.)
• Amount of investments/losses with the Rothstein Structured Settlement Investment.
• Whether you can verify your investments by providing the most recent statements.
• Any additional information that may be helpful.

Information may be provided via dedicated e-mail address [email protected] or to informational telephone line 1-800-CALL-FBI, “Rothstein Option” (1-800-225-5324.) If you have investigative information that may aid the criminal investigation, you may also submit it via email or telephone. For those who would like to return funds received from Rothstein please call the 1-800 number and someone will get back with you with specific instructions on how to return the funds.

Hard copy documentation may be mailed to:

FBI Victim Assistance Program
Rothstein Investment
16320 NW 2nd Avenue
Miami, Florida 33169"

Comments

1. Earlier today the FBI representative said that Rothstein scam losses could top $1billion. 10 days ago the number was $50-$100 million. Needless to say it's looking like Scott Rothstein is going to go away for a very long time.
2. It is a pity that the IRS has chosen not to caption the words "structured settlement", given that a portion of the snake oil that Rothstein was allegedly peddling had to do with the sale or purchase of alleged interest in structured settlement payment rights.
3. It is a pity that the IRS in endorsing this press release has chosen to ignore what is set forth as a definition of structured settlement in 5891(C)(1) of the Internal Revenue Code.
4. It is a pity that the IRS has chosen to ignore the definition of structured settlement factoring transaction set forth in 5891(C)(3) of the Internal Revenue Code.
5. Scott Rothstein represents everything that is the antithesis to what the many honorable structured settlement consultants, registered settlement planners and sudden money financial advisors work to accomplish for their clients every day. It is therefore, patently unfair that the words "structured settlement" are not appropriately captioned to denote that what Rothstein's scam involved putative "structured settlements" or alleged "structured settlements" but apparently weren't structured settlements.
6. I can't help but gloat a little about the irony dripping from cash now pusher factoring firm named Structured Settlement Investments, LP. I've long felt that the name of the company was misleading. Now, while there is no evidence of the company's involvement with Rothstein, the company's label is forever stained by the FBI and IRS label of the Rothstein scam as "structured settlement investment".

She's Right, Sort Of

by Structured Settlement Watchdog

Patricia Laborde. Division Counsel from "cash now" pusher Stone Street Capital, publicly admits to enjoy reading this blog and I thank her for that. She recently made an attempt to hoist me on my own petard concerning the regulation of factoring companies by linking a post that I wrote in December 2008 (denouncing her reference to IRC 5891 as a "penalty" while I corrected her in referring to it as an excise tax) to one I wrote in August). 

In the recent post I utilized the updated IRS Audit Guide on Structured Settlement Factoring as a means to successfully dispel the myth propagated by settlement planners and brokers as well as the factoring industry, that IRC 5891 "made factoring legal" (as a means for some of the former to validate their capitulation and/or justify taking vig from the cash now pushers). Trish Laborde however, displaying the acute reading skills one would expect of a good contract lawyer, alertly points out that in the audit guide the IRS refers to the 40% excise tax as a "penalty". So what we have is a definition in the Internal Revenue Code expressly states that IRC 5891 is about the imposition of an "excise tax" and an audit guide that ALSO refers to it as both.

Steal by Ms. Laborde  She then she tries to "wiggle" past with a misdirection about regulation. There is no dispute that IRC 5891 is a means for regulating one aspect of factoring company behavior. Right now its like pressing your thumb against a high pressure leak and calling it a "protective dyke". It does nothing however, to regulate "Harvey the Rabbit" advertising practices such as "cash now", the predatory bait tactics deployed by Woodbridge, the Structured Asset Funding Ferrari-luxury yacht "fandango", or deal with the scary matter of the bankruptcy of a company servicing structured settlement payment rights.

The fact remains that IRC 5891 did not make factoring legal (or illegal) and Laborde still oversees the division of a company that continues to deliver  a "moo"-ving  "cash now" message.

Touche!

"Cash Now" Stumpy's Whole Forest Full of BS

Greg A. Williams, a  wannabe cash now expert from Florida International University (FIU) on Ezine, claims to be "well read in Finance, Legal Topics, Technology, Education, Travel and Cooking" . Judging from these images we can tip our hats to his impressive Origami skills. Yet Greg A. Williams is unimpressive and flunks as an expert on "getting money for structured settlement".  Here's where "Stumpy" Williams' paper tree forest goes up in flames:
 Make sure the company that is offering the cash is well established. It is important that the payment purchasing company guides and manages the court order process for you. If you do not get a court order, you will be responsible to pay a 40% tax on the cash. The court order was added to the IRS law as a requirement to avoid paying tax on the injury settlement. Get started now! Fill out a form on this site to connect with settlement finance professional".

Structured Settlements 4Real Commentary

1. The operative words are "Internal Revenue Code IRC)  NOT "IRS Law".In the United States, the Congress passes tax laws and requires taxpayers to comply.The taxpayer’s role is to understand and meet his or her tax obligations.The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply  pay their fair share.Source: Internal Revenue Service (IRS).
2. Pursuant to IRC 5891, a 40% excise tax is applied on the factoring discount in the event that the conditions of IRC 5891 are not satisfied by the purchaser of the structured settlement payment rights.
3. As to the tort victim, provided a minor or incompetent is not involved the settlement payments are excludible from gross income under IRC 104(a)(1) or  104(a)(2) ( i.e. representing workers compensation or damages on the account of personal physical injury or physical sickness the settlment payments) and there is no need for Court Order "to avoid paying income tax from an injury settlement".

Greggo, perhaps you aren't as "well read on Finance and Legal Topics" as you thought.

Secured Creditor v Qualified Assignment Structured Settlement

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What Does the Qualified Assignment Have to Do With Structured Settlement Secured Creditor?

A. Prior to the inception of Internal Revenue Code Section 130 (IRC 130) 

Parties to a structured settlement would settle a case. As part of the consideration paid by the defendant (in exchange for a release), a promise to make future periodic payments was made. The defendant, or its insurer, would typically fund the obligation with a structured settlement annuity. 

The annuity would be owned by the defendant, or insurer, and the plaintiff would be no more than a general creditor of the defendant or insurer. The plaintiff was exposed to credit risk that the insurer or defendant holding the periodic payment obligation (and the annuity) would run into difficulty. The possibility existed that a defendant could be in financial jeopardy long after the settlement concluded and that the general creditors of the defendant or insurer could go after the structured annuity which was being carried as an asset on its books.

B. Creation of IRC 130

IRC 130 was created as a result of the Periodic Payment Settlement Act of 1982, enabling the option for the periodic payment obligation to be transferred to a third party "qualified assignment company". A qualified assignment then served two purposes. For the the plaintiff it essentially eliminated the exposure to the credit quality of the defendant or its insurer. For the defendant the "novation" of the claim meant balance sheet relief and a tax write off.

Yet at that time (1983-1988). the structured settlement payee was still a general creditor,  only that time of the qualified assignment company.

C.  Amendment to IRC 130/ Introduction of Qualified Assignment Release and Pledge Agreement

In 1988, IRC 130 was amended to include language at IRC 130(c) (1)(d) that effectively extended the benefit of IRC 130 to cases where the qualified assignment granted status greater than that of general creditor (i.e. "secured creditor"). Through the use of the so called Qualified Assignment Release and Pledge the path to being a secured party to the qualified funding asset begins. Typically the language in in the QARP will provide for the assignee-debtor to grant  " a lien on and security interest in" in the qualified funding asset. The original annuity contract is delivered to the secured party with, among other things, a stamp to that effect. It is important to note that in some states there may be a need for Uniform Commercial Code (UCC) filing. Check with your attorney.

Please refer to the following flow chart which details the typical annuity funded structured settlement transaction. Structured settlements may also be funded with United States Treasury Obligations.

How Structured Settlements Work | Structured Settlements Explained (4structures.com)

Last updated August 19, 2023