by John Darer CLU ChFC MSSC CeFT RSP CLTC
There is a false narrative concerning structured settlement annuities that claims that structured settlement annuities are tax exempt. Structured
settlement annuities are not tax exempt. Where used as a "qualified funding asset" the structured settlement payments may be tax exempt, but the essential reason for the tax exemption is the damages that the payments from the structured settlement annuities represent.
- Payments for workers compensation see IRC 104(a)(1)
- Payments for damages on account of personal physical injury, physical sickness and wrongful death, see IRC 104(a)(2) [and IRC 104(c) for Alabama wrongful death]
- Payments for wrongful imprisonment, see IRC 139F
Structured settlement annuities can be used to fund the payment of damages in settlement of lawsuits comprised of many types of taxable damages. Even though they are funded with structured settlement annuities, if established properly each payment in such cases is taxed in the year received.
I'm sure that the false narrative is not intentional, but what is surprising is the false narrative is articulated in public facing communications by certain people and companies with credentials and experience. Those who spread the false narrative, even unintentionally, may be used as sources of "validation" for content barfers in (or serving) the structured settlement secondary market. Clearly this does not serve the greater good for consumers or the industry.