Structured settlements expert John Darer reviews the latest structured settlements news and information and provides expert opinion and commentary, including settlement planning issues/ ideas for settlement management, incisive Structured Settlement Watchdog® commentary that may be helpful to lawyers, plaintiffs, claims adjusters, judges, the news media, sellers and buyers of structured settlement receivables,and interested others. The style is spicy, informative, irreverent and effective. The most prolific structured settlements blog, Now in 19th Year! Check back daily for something new.
Whether Structured Settlement Payments Have to be Equal (or Substantially Equal) Dependson the Nature of Claim and the Settlement Planning Solution being used
The substantially equal payment requirement applies in situations where:
- There is a non-qualified assignment where a periodic payment obligation is assigned to a U.S. domestic assignment company. - An immediate annuity is utilized as the funding asset.
IRC Section 72(u) was added as part of the Tax Reform Act of 1986.
An annuity contract owned by a non-natural person is not considered an annuity contract for tax purposes IRC §72(u)(1)(A)
The income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year IRC 72(u)(1)(B) and also cited in a presenation to the United States Senate Committee on Finance May 24, 2016 JCX 45-16 (May 20, 2016) "By contrast to the treatment of life insurance contracts, if a deferred annuity contract is held by a corporation or by any other person that is not a natural person, the income on the contract is treated as income accrued by the contract owner and is subject to current taxation. The contract is not treated as an annuity contract".
IRC 72(u)(4) Notable Exceptions to Ownership of Annuity by Non Natural Person
This subsection shall not apply to any annuity contract which—
(A) is acquired by the estate of a decedent by reason of the death of the decedent,
(B) is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan,
(D) is purchased by an employer upon the termination of a plan described in section 401(a) or 403(a) and is held by the employer until all amounts under such contract are distributed to the employee for whom such contract was purchased or the employee's beneficiary, or
(E) is an immediate annuity.
IRC 72(u)(4) (C) and (E) are germane to structured settlements
A 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 Subject to IRC 130(d).
such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment.
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,
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
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.
What is an Immediate Annuity under IRC 72(u)(4)(E)?
For purposes of this subsection, the Code says the term "immediate annuity" means an annuity—
A. which is purchased with a single premium or annuity consideration,
B, the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and
C. which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period
So there you have it. That's where the equal payments (or subtantially equal payments) comes from.
Why Doesn't IRC 72(u) apply to annuities owned by a Qualified Assignment Company?
Because there is an express exception made in IRC 72(u)(3)(C) for an annuity that is a Qualified Funding Asset under IRC 130(d)
Non Qualified Assignment Solutions with Domestic Assignment Company Where IRC 72(u) Applies
Corebridge subsidiaries American General Life Insurance Company and United States Life Insurance Company in the City of New York through their appointed brokers, where an annuity is used to fund an obligation to make periodic payments. Note that the same product providers offers an alternative niche domestic solution using a funding agreement (in lieu of an annuity) as a work around for where a deferral is desired without going to an offshore assignment company.
Metropolitan Tower Life Insurance Company (MetLife)
You can combine different types of cash flows to suit your needs, in a single contract if you wish.
2. Non Qualified Structured Settlement Payments
IRC Section 72(u)(1) "The Non Natural Person Rule"
The so called "Non Natural Person Rule" provides that "if an annuity contract is held by a person who is not a natural person, then such contract shall not be treated as an annuity contract for purposes of subtitle A (other than subchapter L) and the income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year
As an exception to the " non-natural person rule, payments must be substantially equal within the meaning of IRC 72(u)(4).
IRC 72(u)(4) Definition of Immediate Annuity
For purposes of this subsection, the term “immediate annuity” means an annuity—
72(u)(4)(A)
Which is purchased with a single premium or annuity consideration,
72(u)(4)(B)
The annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and
72(u)(4)(C)
Which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.
In the structured settlement space, this applies where a domestic (US) non qualified assignment is funded with an annuity, where the annuity is owned by a non-natural person.
Examples
AGL Assignments, LLC is the non qualified assignment company for Corebridge subsidiaries American General Life Insurance Company and United States Life Insurance Company in the City of New York (NY cases) and is registered in Delaware.
MetLife Assignment Company, Inc. is an assignment company, registered in Delaware, that handles both qualified and non qualified assignments where Metropolitan Tower Life annuity is the issuer of an annuity owned by MetLife Assignment Company, Inc.
Are There Any Workarounds to IRC 72(u)?
Non Qualified Assignments Where Funding Asset is Not an Annuity
AGL Assignments, LLC is the non qualified assignment company for Corebridge subsidiaries American General Life Insurance Company and United States Life Insurance Company in the City of New York (NY cases). A non qualified structured settlement solution is available in all states except Pennsylvania, using a Funding Agreement instead of an annuity. The Funding Agreement is not an annuity.
The Period Payment Agreement (PPA), issued by Metropolitan Tower Life Insurance Company, extends settlement solutions to certain non-qualified structured settlements.
Defer the tax on your taxable settlement with a non qualified structured settlement
The MetLife Periodic Payment Agreement is designed to transfer the financial obligations of personal physical injury cases that are not assignable under IRC Section 130, where the annuity is a qualified funding that meets the exception to the "non-natural person rule" set forth in IRC 72(u)(3)(C).
Examples of non-assignable personal physical injuries
Personal physical injury cases that do not qualify under IRC 130, are long term disability cases (LTD) and workers compensation cases with pre- August 5, 1997 liabilities
Exceptions to the non natural person rules in IRC 72(u) state
IRC 72(u)(3)(C)
if the annuity is a qualified funding asset (as defined in section 130(d), but without regard to whether there is a qualified assignment),
IRC 130(d)
Qualified funding asset. 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,
such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment;
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
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
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.
Product and Market Applicability for MetLife Periodic Payment Agreement
MetLife is currently offering two versions of the Periodic Payment Agreement designed to solve the needs of different situations:
• PPA – Contingent: Provides for contingent liability as required in certain states for Worker’s Compensation cases (e.g. Texas) • PPA – Release: Provides a full and final release and can be used for Pre-1997 Worker’s Compensation cases and Disability cases
Minimum Premium $500
Maximum Premium $1,500,000 [ but may take more depending on market conditions]
Maximum Payout Period 40 years
Maximum Issue Age 85
Available in all 50 states, DC, Puerto Rico
MetLife Guarantee applies to MetLife Tower Resources Group Inc. owned annuities purchased as part of of a PPA, in a similar way to regular qualified structured settlements where such a guarantee applies where MTRG is the qualified assignment company.
What are the requirements of IRC 72(u)?
Pricing limitations for this product include: • Payments must start within 12 months of funding; no deferred lump sums • Must result in substantially equal payments • Payout must be made in regularly scheduled intervals, and at least annual
This is not MetLife's first foray into the non-qualified structured settlement market. MetLife previous wrote periodic payment reinsurance through MetLife Insurance Company of Connecticut, however that channel was ended in a corporate reorganization. According to our sources, MetLife has the ambition to be a player in the non qualified structured settlement space and we expect that the scope of the MetLife's Periodic Payment Agreement will be enlarged to include employment settlements as well as other cases involving taxable damages.
For claimants and attorneys alike, there is a certain comfort level dealing with a regulated legal reserve insurance company and its licensed agents, or brokers.
Founded in 1868, Metropolitan Life Insurance Company ratings at time of posting
A.M. Best A+
S&P AA-
Moodys Aa3
Fitch AA-
Other annuity based non qualified structured settlement solutions include American General Life Insurance Company, United States Life Insurance Company in the City of New York and Independent Life Insurance Company [updated]
One of the purposes of licensing is to help assure that those that practice a profession possess a fundamental body of knowledge before being legally permitted to solicit consumers. The individuals and companies that solicit consumers to sell their structured settlement payments for a discounted lump sum of cash are currently immune from licensing and a regulated fundamental body of knowledge, for an unexplained reason. In my opinion and a growing body of others this must change.
USSF An annuity that pays the investor a fixed about (sic) of income.
Why USSF is Wrong Maybe the person who wrote the glossary for USSG "had a stuffy nose" that day! A fixed annuity could have multiple definitions. "Fixed" could refer to payments or rate of interest. On the one hand it could be (1) a type of insurance contract issued by a life insurance that provides for payment to the annuitant in fixed installments; it could be (2) an annuity that bears a fixed rate of interest; it could be (3) an annuity that is tied to a index, such as a " fixed index annuity". In this case the amount of income may be adjusted in accordance with the performance of the index.
B. Guaranteed Payments
USSF Payments made under an annuity contract that are guaranteed to be made evenif the payee is living or not.
Why USSF is Wrong: Guaranteed or certain payment under an annuity contract are those payments that will be paid whether or not the payee survives the entire payment schedule (whether or not the payee is living)
C. Immediate Annuity
USSF: These are annuities whereby the annuity issuer will begin making payments either at least one year out or immediately to the payee.
Why USSF is Wrong: IRC 72(u)(4) states that the term “immediate annuity” means an annuity—
which is purchased with a single premium or annuity consideration,
the annuity starting date (as defined in subsection (c)(4) of which commences no later than 1 year from the date of the purchase of the annuity, and
which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.
D. Liquidity
USSG:The ability to sell an asset quickly with little or no loss in value
Why USSF is Wrong: Liquidity the ability to be converted into cash. The service that USSG sells, is guaranteed to result in a loss in value in exchange for your financial asset (your structured settlement payment rights)
E. Qualified Assignment
USSF: This is a legal assignment of the obligation to make future payments according to a structured settlement that satisfy the requirements of Internal Revenue Code for favorable tax treatment of a structured settlement.
Why USSF is Wrong: A qualified assignment is the transfer of a legal obligation to make future periodic payments payable as damages under a suit or agreement that satisfies the requirements of IRC 130. The tax treatment of future periodic payments to the payee is a function of the type of damages. A structured settlement does not have to be set up with a qualified assignment. Buy and hold structured settlements and the use of periodic payment reinsurance do not involve qualified assignments.
F. Structured Settlement Annuity
USSF: A special annuity that is set up as consideration for the settlement of a lawsuit.
Why USSF is Wrong: A structured settlement annuity IS NOT simply the consideration for the settlement of a lawsuit. A structured settlement annuity is a type of customizable annuity that includes both immediate and deferred components. Elements of a contract include an offer, acceptance and consideration. In those lawsuit settlements that includes a structured settlement, the consideration will include cash as well as a promise to make future periodic payments. The future periodic payments may be funded with a structured settlement annuity as a so-called " qualified funding asset"
W-9 Form
USSF: A tax form for the United States which certifies an individual’s taxpayer identification number.
Why USSF is Wrong A W-9 form is a request for Taxpayer Identification Number (TIN) from the IRS. It is the taxpayer who/which is certifying TIN on the form. not the form doing the certifying :-) . The form W-9 can be used by a tax payer to certify TIN for an individual, various forms of business entity or a trust/estate.Under penalties of perjury, the person signing the W-9 certifies that:
The number shown on the W-9 is the taxpayer's correct taxpayer identification number (or taxpayer is waiting for a number to be issued to him/her or it); and
Taxpayer is not subject to backup withholding because: (a) He/she/it is exempt from backup withholding, or (b) He/she/it has not been notified by the Internal Revenue
Service (IRS) that he/she or it is subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that he/she or it is no longer subject to backup withholding; and
He/she or it is a U.S. citizen or other U.S. person; and
The Foreign Account Tax Compliance Act (FATCA) code(s) entered on the W-9 form (if any) indicating that he/she/it isexempt from FATCA reporting is correct
In this blog John Darer reviews what can go wrong if a qualified assignment is not completed properly.
What Can Go Wrong if a Qualified Assignment is Not Done Properly?
An asset/liability mismatch caused by adverse taxation of annuities owned by non natural persons highlights one of the reasons why defendants and insurers and their settlement consultants must be certain that a qualified assignment meets each of the requirements of IRC 130(c).
As expressly stated in the Internal Revenue Code:
(c) Qualified assignment
For purposes of this section, the term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)—
(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen’s compensation claim, and
(2) if—
(A) such periodic payments are fixed and determinable as to amount and time of payment,
(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,
(C) the assignee’s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and
(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104(a).
The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor.
Most of the requirements are pretty easy, but we recently brought up a death case where the decedent extensively suffered for close to 6 years prior to his death and such pain and suffering and this fact and alleged damages resulting therefrom was extensively pleaded.
There appears to be no definitive authority in the Internal Revenue Code, or in the form of an IRS Private Letter Ruling, which permit distributions from an estate for a decedent's pre-death claim to be assigned under IRC 130(c).This author has not been convinced otherwise by three separate lawyers who are tax authorities with an expertise in structured settlements.
Isn't a Defendant/ Insurer looking for a closed file with a cost not to exceed the settlement funding amount bargained for?
If there is an unwind as the result of damages not qualifying under IRC 104a (e.g. inheritance v damages), then the qualified assignment (novation) is of no effect and ownership of the qualified funding asset transfers to the Defendant or Insurer which has an obligation to make payments. VERY IMPORTANT: If the Defendant or Insurer as Assignor has taken a tax deduction for the amount of consideration paid to the assignee in a prior year then the value of the now "unqualified funding asset" may need to be included in income. DISASTER!
The next problem is that the taxation of annuity income under IRC 72(u)(3)(C) means that an asset/liability mismatch occurs. Under IRC 130(c), the qualified assignment company may exclude this income so it's a wash (see #3 below). On the otherhand, the bemused owners of the "new asset" (assuming a US based Defendant/Insurer), would be taxed on the income. This simply assures that the cost they bargained for will be insufficient to make the payments they would be obligated to pay.
See Technical Explanation to Victims of Terrorism Act of 2001 p 24 "A qualified funding asset means an annuity contract issued by an insurance company licensed in the U.S., or any obligation of the United States, provided the annuity contract or obligation meets statutory requirements. An annuity that is a qualified funding asset is not subject to the rule requiring current inclusion of the income on the contract which generally applies to annuity contract holders that are not natural persons (e.g., corporations) (sec. 72(u)(3)(C)). In addition, when the payments on the annuity are received by the structured settlement company and included in income, the company generally may deduct the corresponding payments to the injured person, who, in turn, excludes the payments from his or her income (sec. 104). Thus, neither the amount received for agreeing to the qualified assignment of the liability to pay damages, nor the income on the annuity that funds the liability to pay damages, generally is subject to tax". Download JCX-93-01 Joint Committee on Taxation Victims of Terrorism Tax Relief Act of 2001 IRC 5891
From the plaintiff' standpoint
An unwind of the assignment where the qualified assignment has included a pledge, means a loss of security interest.
A QSF does not solve the problem as the QSF will have likely wound up its affairs by the time a potential IRC 130(c) unwind occurs.
Attempting to cure the problem by naming the plaintiff the owner of the annuity if IRC 130(c) fails, is also not a prudent solution. What was a "qualified funding asset" no longer be "qualified" and will then likely generate taxable income above the present value of the asset on the date of ownership change, according to tax lawyer David Higgins.
This information highlights the fact that structured settlements ,while simple on their face, have an inherent complexity that must be carefully addressed when the structured settlement is placed.
Can you structure damages paid for pre-death pain and suffering or other elements of damages originating PRIOR to the decedent's death?
Can a decedent's heirs avoid these elements of damages by simply allocating 100% to wrongful death when the facts of the case show that litigation was commenced many years before a decedent's death and in which the decedent's pain and suffering was extensively pleaded in the years leading up to the decedent's death, day in the life videos were produced and used to support the case, mediation briefs documented the suffering, there were projections of loss of earnings etc.
Consider the following:
Auto accident case
Litigation commenced 5+ years before decedent died
Plaintiff was in excruciating pain for 5+ years before he died,
Plaintiff left 2 minor children
Litigation commenced shortly after the accident occurred and stretched an additional 2 years after his death. The case caption was amended to the "Estate of" after the decedent died.
Discussion
A. Decedent's pre-death pain & suffering must pass through his/her estate.
"Proceeds from causes of action originating before the decedent's death, such as pain & suffering, become part of the decedent's gross estate" Death and Damages Can Be Taxing-Jeremy Babener NYU Law, Trusts and Estates Journal (Penton Media) April 2011 citing Rev Rul 69-8 1969-1 CB 219 and IRS Technical Advisory Memo 98-11-006 (November 24, 1997) (award to plaintiff's trust included in plaintiff's estate upon his death; and Estate of Jeanne M. Houston v Commissioner of Internal Revenue Service TCM 182-362 (June 28, 1982) (claim of wrongful death of husband included in widow's estate upon her subsequent death)
B. All the property that a person owns is part of his or her estate. An estate can include clothes, jewelry, tools, cars, musical instruments, a house, land the house is built on, cash, bank accounts, retirement accounts, stocks, bonds, annuities and other items. The aforesaid damages are an additur to the taxable estate of the decedent. Applicable Estate and/or inheritance taxes (after any applicable estate tax deductions) and executor fees (administrator costs, if dies intestate) must be paid BEFOREthe remainder is divided among survivors and closing of the Estate.
C. Personal physical injury damages and physical sickness damages are excludable from gross income subject to the terms oi IRC §104(a)(2)
D. Money received as an inheritance is excludable from income under IRC §102(a)
E. IRC §130 governs qualified assignments. IRC 130 is a work around the taxation of income from annuities owned by non natural persons (see IRC 72(u)). Without the work around the cost of structured settlement would likely increase as there would be no tax exclusion to the assignee. The tax exclusion is critical in the majority of structured settlements where Defendants and their insurers have no interest in owning the annuities, or having a contingent liability. on their books. We can easily point to non qualified assignment companies to prove our point. If the IRC 130 exclusion was not an issue for non natural persons then there would be no need for offshore domiciles such as Barbados and Ireland for non qualified assignment companies.
F. IRC §130(c) (2)(D) makes no provision for payments received as an inheritance under IRC §102(a). To wit
(A) such periodic payments are fixed and determinable as to amount and time of payment,
(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,
(C) the assignee’s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and
(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104(a).
G. The legislative history of the 1996 amendment to Section 104(a)(2) provides explicitly: If an action has its origin in a physical injury or physical sickness, then all damages (other than punitive damages) that flow therefrom are treated as damages received on account of personal physical injuries or physical sickness whether or not the recipient of the damages is the injured party. For example, damages (other than punitive damages) received by an individual on account of a claim of loss of consortium due to the physical injury or physical sickness of such individual's spouse are excludable from gross income. H.R. Conf. Rep. No. 104-737, at 300 (1996), reprinted in 1996 U.S.C.C.A.N. 1474, 1793.
H. Private Letter Ruling 200121031, 5/29/2001, IRC Sec(s). 104..."Because there exists a direct link between the physical injury suffered and the damages recovered, Taxpayer may exclude from gross income any economic damages compensating for such injury..." Source: Little Meyers & Associates
*****
On May 4, 2011 I posed the following question to several recognized tax authorities on structured settlements:
"Can the portion of settlement allocation reflecting the pre-death pain & suffering damages be structured to heirs? My understanding is that IRC 102(a) covers inheritances, any damages flowing from PI are not income taxable, IRC 130(c) only provides for assignment of IRC 104(a)(1) and IRC 104(a)(2) What is bugging me is the severity and duration of the P&S being major part of the negotiation and prosecution of the case.
Your initial thoughts on whether or not this could be structured"
I think you are the only broker or life company in the business that pays attention to this issue. Damages suffered by the decedent before his death belong to the decedent and pass through his estate. Those are excluded from the heir’s income as inheritances, not damages for personal injury".
David M. Higgins
THE SETTLEMENT LAW GROUP 11355 West Olympic Boulevard, Suite 200 Los Angeles California 90064 Tel: 213-833-0202 Fax: 213-291-8300 Cell: 310-415-3344
B. After this clarification from me
"...apologies for not being more clear in the question, I am aware of the Estate tax issue, my question is whether or not the damages that must pass through the estate can be structured? Clearly an allocation to wrongful death is a solution. However the unusual aspect of this case is the degree and duration of P&S, which seems to make an allocation to all Wrongful death more difficult. The Surrogates Court must approve the allocation. My client is an insurer. The provisions in a standard QA that permit an unwind (of the assignment) if IRC 130 (c) (isn't satisfied) brings into focus where my concerns lie here".
To which the answer was...
"...If the damages must pass through the estate, that would mean the damages to the estate are free of income tax, but then the beneficiaries of the estate are receiving money from the estate. That may mean they are no longer (IRC Sec) 104 damages. (emphasis ours) This is a new and interesting issue, but I'd have to have someone hire me to be able to render an opinion."
Issues
1. While some may try to justify structuring such elements of damage under the "origin of claim" principle, there appear to be sufficient questions about whether structuring elements of damages that must pass through a decedent's estate is possible.
2. Defendants, their insurers and counsel should carefully review settlement allocations in cases with this peculiarity to assure that the allocation is reasonable given the facts of the case, raise the issue with opposing counsel in timely fashion and avoid participating in a structured settlements where the math on the damages doesn't work out. Remember there are unwind provisions in every qualified assignment if IRC 130(c) is not satisfied. The provision is there solely to protect the qualified assignment company in case some sneaky "S.O.B." tries to slip through a case in that does not qualify. You said you wanted a CLOSED file right? NOT THIS!
3. Plaintiff attorneys, be aware that defendants and insurers are under no obligation to pre-fund structured settlements. At their option, many do so as a convenience. Sometimes that works in your client's favor. If you have such a case it may be a good idea to propose a reasonable allocation that the defendants or insurers can live with and only structure the direct survivors actions.
4. Are you being advised to use a single claimant 48B QSF and think a single claimant 468B QSF will solve your problem because the QSF trustee doesn't care about an unwind of the qualified assignment? Think again! If the unwind provisions are set in motion after an audit several years down the road, who is going to own the annuity and the obligation of the QSF, if the QSF no longer exists? Who is going to pay the attorney fees of your client to sort out the morass that you counseled them to accept?
5. Surrogate and Probate Judges should perform an extra careful review of submissions to make sure that an allocation is reasonable.
6. Should a fix to IRC 130 be sought that includes inheritances of this fashion under IRC 102(a)?
7. Lest anyone misinterpret me, I am not saying don't do structures on wrongful death cases.
8.. Some have suggested using a non qualified assignment but the idea needs further fleshing out.
A new IRS Private Letter Ruling gave a disabled taxpayer relief by permitting withdrawals of unequal periodic payments from the taxpayer's IRA.
Background
The taxpayer has multiple sclerosis and is unable to engage in any substantial gainful activity because of the physical impairment resulting from this sickness.
IRC Section 72 imposes a 10% penalty tax on certain early distributions from qualified retirement plans such as IRA, 401(k) etc. The penalty is imposed on distributions prior to age 59 1/2.
IRC 72(t)(2) (iii) provides an exception to the the tax when distributions are attributable to disabled individuals within the meaning of IRC 72 (m)(7)
IRC 72(t)(2)(iv) provides an exception when distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his or her designated beneficiary.
IRC 72(m)(7) provides that an individual shall be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any physical or mental impairment which can be expected to result in death or to be continued and indefinite duration.
Settlement Planning Issues for Discussion
The either "72(m)(7) disabled" OR "substantially equal periodic payments" exception afforded to disabled IRA owners and qualified plan distributees appears to apply to holders of modified endowment life insurance contracts (see IRC 72(v)(2)(B)) and 72(v)(2)(C), but DOES NOT appear to apply to holders of annuities.
IRC 72(u) imposes a similar 10% penalty tax on withdrawals from annuities prior to age 59 1/2. The exceptions relevant to plaintiffs are:
If annuity contract acquired by estate of decedent by reason of death of decedent 72(u)(3)(A)
If annuity is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan, 72(u)(3)(B)
A qualified funding asset, defined in IRC 130(d), but without regard to whether or not there is a qualified assignment 72(u)(3)(C)
Is an immediate annuity 72(u)(3)(E)- which requires
a single premium;
a start date of no later than one year from the date of purchase of the annuity; and
the "substantially equal periodic payment requirement".
Please consider these issues when making settlement planning recommendations to disabled tort victims that include non structured deferred annuities.
For more information contact John Darer at 888-325-8640
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Compare Structured Settlement IRR to Other Settlement Alternatives Use the Taxable Equivalent Yield chart to help compare the Internal Rate of Return (IRR) of a structured settlement to other alternative or complementary investments. Need help with the chart? Call 4structures.com® LLC at 888-325-8640
Structured Settlement Payments | Types of Structured Settlements 2024 Ways You Can Structure Your Settlement Payments in 2024. With a structured settlement you can have more than one type of payment in a single contract. Different types of structured settlement payments can be customized and combined to meet your needs on a stand-alone basis, or in conjunction with other financial products. Diversify your structured settlement, if you wish, by funding with more than one annuity issuer, with treasury funded structured settlements, index linked structured settlement payments and market based structured .
Structured Attorney Fees for Tax Deferral for Attorney Contingency Fees Structured attorney fees is a financial strategy that offers a unique way to defer taxes for lawyers and law firms. Lawyers CAN structure their legal fees even if the plaintiff doesn't structure their settlement. There are multiple ways to structure your attorney fees, such as capped or uncapped index linked structured settlement annuities where payments are adjusted based on upside changes in the S&P 500 or another index, Trial Lawyers may also use a special deferred pay/deferred compensation arrangement, if market based returns returns are desired with no cap. Plan NOW for year end! Put structured attorney fee expert John Darer® on your settlement planning team in 2024.
Structured Settlement Annuity Company Customer Service Phone Numbers Receiving structured settlement payments from your own structured settlement or inherited structured settlement? You'll like this huge time saver. Click the title for a link to a comprehensive list of customer service telephone numbers that includes both current AND former structured settlement annuity issuers and reinsurers. If you have simple bank or beneficiary changes, or if the insurance company that issued the structured annuity has merged, sold or spun off its block of structured annuity business (e.g. Aviva, Allstate, Transamerica, AEGON, GE Capital, Liberty, CNA, Confederation Life), oran annuity issuer has changed its name and you're trying to track them down. Here you go! The list is regularly updated. Last updated May 20, 2024.
Structured Settlement Quote Lock-Ins | What You Need To Know What does a Structured Settlement Lock-In Mean? How do plaintiffs, defendants and insurers benefit from a structured settlement quote lock in when finalizing a settlement? How does the defendant/insurer/court benefit from using a structured settlement lock-in? Where to be careful when using structured settlement lock ins.
What Are Structured Settlement Annuities? Structured settlement annuities are annuities that can provide one or more customized annuity payment streams in a single contract. Read about structured settlement annuities here.
History of Structured Settlements Tracing the roots of structured settlements history from 1918, when Congress exempted damages for personal injury or sickness from income tax, to the establishment of structured settlements as a core personal injury settlement planning tool to the present day.
What Are Market Based Structured Settlements? Market based structured settlements are an alternative or supplementary structured settlement solution for the plaintiff, attorney or law firm that:
1. Can afford to take some market risk
2. Have discretionary settlement dollars.
Claimants and attorneys alike may find that market-based structured settlements provide the opportunity to receive tax-free income, or tax-deferred income, while enjoying growth potential.
Structured Settlements and Longevity Risk| What Are the Odds? Do your financial resources give you enough road, or will the road run out before you do? A structured settlement annuity helps mitigate the risk of outliving your savings, no matter how long you live. A structured settlement can include one or more customized payment streams and types.
Firmwide Qualified Settlement Funds Debunked Firmwide qualified settlement funds have been heavily promoted to trial lawyers, but have been debunked in a detailed analysis in a July 2022 legal opinion a tax partner at the law firm of Faegre Drinker Biddle & Reath, LLP. Trial lawyers and firms who have established Firmwide QSFs or coinsidering establishing a Firmwide QSF should read the analysis as part of their evaluation.
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STRUCTURED SETTLEMENTS 4REAL® Blog Is a Popular Source of Structured Settlement News, Information and Commentary, John Darer Reviews, Settlement Planning News and Financial Solutions for over 18 years,
with a stable readership that seeks credible structured settlement information, John Darer Reviews, commentary and/or opinion about topical issues related to settlement planning, targeted to lawyers, injured persons and their family members, guardians, survivors, judges, magistrates, special masters, mediators, administrators, trust companies, insurance company executives and adjusters, financial advisers, settlement professionals, financial professionals, insurance regulators, government leaders, federal and state law enforcement, buyers and sellers of structured settlement payment rights, the news media and other interested parties.
4structures.com LLC established this structured settlement blog in 2005. John Darer ®, CLU ChFC MSSC CeFT® RSP CLTC, President of 4structures.com, located in Stamford, CT 06902. John Darer is an experienced New York City area structured settlement expert, structured settlement broker, Certified Financial Transitionist, and Registered Settlement Planner. He holds insurance licenses in 45 states, has 41 years financial services experience and 31 years in the structured settlements and settlement planning space.
In his capacity as a investigative journalist and commentator, and professionally, John Darer passionately believes that shining the light on a business practice is both healthy and newsworthy. It is in the best interest of injury victims, their families and their legal advisers, that the settlement planning discussion involve those that are properly trained in the topic, properly informed on the topic and, with respect to structured settlements, properly licensed and/or appointed. It has significant instructional and deterrent value to other practitioners and firms as well as those who may be caught in the cross hairs.
WHAT YOU GET here is the straight stuff with a touch of irreverence and humor. We hope you enjoy and find the content to be helpful.
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Last updated July 10, 2024
New York City Structured Settlement Experts Bridge building settlement consultants who collaborate with clients using a humanistic process, providing creative and reliable advice and support for litigating parties and their lawyers with matters in Courts throughout the New York City metropolitan area
New York Structured Settlement Expert Whether you're at the crossroads of the world or the crossroads of your life, structured settlements provide stability for when life is at a crossroad. Call 888-325-8640
New York Settlement Planning Expert for NY Attorneys and Residents - YouTube New York settlement expert John Darer's comprehensive approach to Settlement Planning helps New York personal injury lawyers and their clients move through the financial transition resulting from a major life event. CPLR Articles 50A and 50B expertise for New York lawyers
New York Structured Settlement Expert Useful information and ideas about structured settlements, settlement planning and litigation recovery managements for New York residents, New York Lawyers and New York judges
New York General Obligations Law §5-1702 The New York Structured Settlement Protection Act imposes mandatory requirements on the defendant or the defendant's legal representative when a structured settlement is created (as part of the resolution of a case)
Structured Settlements v Structured Judgments Often confused by writers on the Internet, but there IS a difference between structured settlements and structured judgments under CPLR Articles 50A or 50B. Find out more...
Connecticut Structured Settlement Experts 4structures.com LLC is based in Stamford CT and Connectict works with clients all over CT, Greenwich, Stamford, Darien, New Canaan, New Haven, Hartford, West Hartford, West Haven, Torrington, Danbury, Wilton, Ridgefield, Norwalk, Midletown, New London, Westport, Oxford, Stratford, Old Greenwich, Stafford, Storrs, Groton
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"I wanted to send you this email to say Happy New Year to you and your family. May God continue to bless you. I am grateful that I had the opportunity to meet you on the phone. I truly thank you for introducing me and my son, (redacted) to (lawyer). It is people like you that God put in the path of my son situation. Thanks a million times! {original on file] 1-2-2015
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"time" was NEVER an issue!"-Andrew S 8/18/2012
" I wish there were more like you" JG 9-15-2014
In my opinion, John Darer is an excellent consumer advocate in the insurance industry. When I had no one else to turn to after running up against the stone walls of these giant insurance company, John Darer used hours of his own time to investigate my situation. Not only is this an invaluable service to me the consumer but it is also of great value to the insurance industry by providing them consumer feed-back. This allows the insurance companies to correct their faults and move toward greater transparency which improves the overall public image of the insurance industry as a whole" JW 9/4/2014
John, Keep fighting the fight. -NASP member 12-4-2013
John...Thank you for your professional advice-Brandon 11-13-2013
"...Thanks to Mr. Darer's blog and personal pointers I was able to obtain a fair price for the sale of client structured settlement. Therefore, if one has no choice, but to sell their settlement educate yourself first before selling start by reading John's blog" Mr P. 11/17/2012
"I always appreciate when he (John Darer) keeps us informed on regs and rules. No one does it better"- structured settlement industry colleague and reader RY 7/26/2012
"Amen - and continued thanks for your vigilance, John"- RL 8/18/2011
"Thanks for writing these great blogs on your site John! As an individual investor I have learned so much about the secondary market (for annuities, structured settlements, lottery payments, etc.) from your blogs and video series!!!" (6/5/2011)
I have found the intelligent and forthright information on your site a godsend. So much so I have tried in a small way to pass on my findings to others. Please keep up the good work and enhance your well deserved reputation as the authority on this subject- Mike 4/29/2011
John -
I can't thank you enough for bringing this to my attention. In my wildest dreams... PJ-May 12, 2011
John, I love reading your blog! Not only have I found very useful information there, but the comedy is much appreciated! Thanks for talking about "the big pink elephant in the living room" that everyone else ignores!
Thank you again for your help via phone and blog! I really needed to hear what you had to say today! BM 11/23/2010
John—this (video published 11/2010) is a well done piece. I like the way you always stick to the facts-AM
What a wonderful blog you have! I have completely enjoyed reading some of your posts (4/16/2010)
Thank you so very much for discussing my concerns about Symetra, my annuity company. I am amazed that PI attorneys as well as a settlement broker in San Diego, could not answer the simplest questions I had regarding the Safeco/Symetra issue. Your blog/web site is most interesting and informative, and I am grateful you have take on the "watchdog" role!
Thank you so much again (3/25/10)
"Keep up the good work exposing abuses in our industry - our future depends on clients being properly advised."-CD
Just checked out your blog and loved it. Keep up the good and balanced work-DL
"...we have never met but I thoroughly enjoy your web site and blog - excellent material…-PB
"I enjoy your website and its content. Informative and well written"-JC
I heard a radio ad for the Peachtree Settlement Fund as I was driving into work this morning. (San Francisco Bay area.) I decided to check it out on the Internet and came upon your blog. Thank you very much. I do not have a “structured” settlement,
"All the others that I had emailed & have seen on the net were "cash now types" & have no concern of me & just are looking for my $$$. When I came across your site & blog I realized that u are an upstanding guy & are not like others. That's why I emailed"
This was Great. Right On Point-TS
"Other Than John Darer No One Seems To Be Doing Anything"-J
Thanks for your help and also for the good work you do on behalf of our industry-L
"Thank you for being the inspiration that you are and for being a strong advocate for integrity in our business"-KL
"I Commend You On Your Effort To Make a Difference!" -R
"He is a fabulous writer who has a great passion for the structured settlement industry. I commend him on the passion he invokes when he writes on his blog listed above. That type of commitment and passion is hard to find and is rare in this world" -AC
Structured Settlement Best Practices Corner
New York Insurance Advertising law requires the full name of the Insurer to be listed along with the city and state of the principal office. Stating that you represent these fine companies using Insurance company logos without the preceding information are also illegal
When it comes to settlement documents it is the ultimate responsibility of the lawyers or claims adjusters who receive input concerning the structured settlement aspects of the documents to actually read the entire document, exercise independent thought and advise their clients properly
Be aware that financial advisors use of testimonials is prohibited or restricted
Most states require that Testimonials represent the CURRENT opinion of the person who made the testimonial. Be prepared to back it up.
Number of States That Prohibit Payment of QSF expenses by licensed agents and brokers
All posts, including memes created by John Darer, Copyright 4structures.com, LLC 2024. All rights reserved. Ongoing filings have been made with the United States Copyright Office. Except for those videos in which John Darer appears, or any video advertisements or public service videos appearing on, this blog, no claim is made to videos, music or images in any mashup which are the property of their respective owners. Disclaimer: The use of any marks herein does not suggest any sponsorship, affiliation or relationship with owners of such marks. Any marks used in commentary herein are in the context of fair use to discuss the newsworthy topics presented herein.This web site is not endorsed by, directly affiliated with, maintained, authorized, or sponsored by any insurance or other company referenced herein. All products, services and company names are the registered trademarks of their original owners. The use of any trade name or trademark is for identification and reference purposes only and does not imply any association, sponsorship or endorsement between the trademark holder and the operators of this web site.
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Comments and Trackback Policy
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Comments to this blog are encouraged, welcome and add spice to the interactive nature of blogs. However, the unscrupulous practice by some to deliver comment spam, to connect all manner of unrelated products to structured settlements, detracts from user experience, is NOT tolerated by this author and thus necessitates the practice of comment screening.
Jay J. Sangerman, PLLC A New York and Florida based AV rated estate planning law practice with an emphasis in Supplemental Needs Trusts, which assists attorneys in efficient case settlement though the use of Supplemental Needs Trusts and Special Needs Trusts; and Elder Law
Day Pitney LLP - People - Keith Bradoc Gallant Brad's practice includes traditional trust and estate planning and administration, special needs and disabilities planning, planning for same-sex couples and their families, planning for incapacity, and all types of probate litigation.
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The John Darer® authored Structured Settlements 4Real® blog is the most prolific structured settlement blog, providing information, commentary and opinion since 2005 with over 5,420 blog posts, and counting!
Why Take a Structured Settlement?
A structured settlement offers guaranteed financial security to personal injury victims, wrongful death survivors and their families. A structured settlement involves a customized stream of payments, provides long-term stable tax-free income, for a period of years or a lifetime. Unlike other income annuities. a structured settlement annuity can have multiple payment streams to address multiple needs in a single contract.
London Market Structured Settlements Experts Bridge building settlement consulting using a humanistic process, providing creative and reliable support for London Market Insurers, Lloyds Syndicates, Claims Professionals and Lawyers
New York Structured Settlement Experts Bridge building settlement consultants who collaborate with clients using a humanistic process, providing creative and reliable advice and support for litigating parties and their lawyers.
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on the Nature of Claim and the Settlement Planning Solution being used
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