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April 01, 2022

Structured Settlement Investments 101 | What are Structured Settlement Payment Rights?

by John Darer CLU ChFC MSSC CeFT RSP CLTC
 

What are Structured Settlement Payment Rights?

According to the definition of "structured settlement payment rights" found in the Internal Revenue Code at IRC 5891(c)(2), the Secondary market annuity investment term “structured settlement payment rights” means rights to receive payments under a structured settlement.
 
How Are Structured Settlement Payment Rights Created?
  • Structured settlement payment rights are established by contract when a lawsuit is settled and where part of the consideration for the release of the Defendant or Respondent includes an obligation to make future periodic payments.
  • In a personal injury settlement, the settling parties execute a Settlement Agreement and Release and then a Qualified Assignment agreement. The latter contract provides for a consented substitution of obligors from the Defendant or its Insurer to the Qualified Assignment Company.
  • The Qualified Assignment Company then purchases a qualified funding asset (typically an annuity from a life insurance company) to fund the periodic payment obligation that it has assumed via the Qualified Assignment.

Are Structured Settlement Payment Rights an Annuity?

 
No, a structured settlement is not an annuity, A structured settlement obligation may be funded with an annuity but the structured settlement itself is not an annuity. This is a fundamental and important distinction for anyone seeking to invest in structured settlement payment rights. 
 

What is a Structured Settlement Factoring Transaction?

 
According to the definition of "structured settlement payment rights" found in the Internal Revenue Code at IRC 5891(c)(3)(A), the term “structured settlement factoring transaction” means 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.
 

Food for Thought

 
  • If a structured settlement were an annuity (it isn't), why would you need to fund it with an annuity?
  • If a structured settlement factoring transaction is transferring structured settlement payment rights (including portions of structured settlement payments), then whose magic wand makes it an annuity, as that term is defined under state insurance law?
  • Why would an investment salesperson, including certain settlement planners call structured settlement payment rights an annuity, in advertising, or in a sworn affidavit to a court, when it's not an annuity?
  • Does it make sense to entrust your money with an investment salesperson or settlement planner who "misgenders" a financial instrument?

Posted at 11:38 AM in AZ Structured Settlement Investments, Boca Raton Structured Settlement Investments, Buffalo Structured Settlement Investments, CA Structured Settlement Investments, CT Structured Settlement Investments, Florida Structured Settlement Investments, Ft. Lauderdale Structured Settlement Investments, LA Structured Settlement Investments, MA Structured Settlement Investments, MD Structured Settlement Investments, Miami Structured Settlement Investments, MN Structured Settlement Investments, NJ Structured Settlement Investments, NY Structured Settlement Investments, RI Structured Settlement Investments, Structured Settlement Investments 101, Structured Settlement Watchdog®, Truth In Advertising Structured Settlement Factoring, TX Structured Settlement Investments |

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July 03, 2020

Maryland EXCLUDES Acquired Structured Settlement Payment Rights From Guaranty Fund Cover

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Bad news for investors in structured settlement payment rights in Maryland

You aren't going to get any protection from the Maryland Life and Health Guaranty Corporation in the

Maryland State House
Bad news for investors in factored structured settlement payments

event the insurance company issuing the investor's checks goes insolvent and liquidates.  To be clear, the latest revision to Maryland law affects investors who buy other people's structured settlement payment rights.

EFFECTIVE DATE: July 1, 2020

SENATE BILL 186 / HOUSE BILL 141 (CHAPTER 74 / CHAPTER 73) - LIFE AND HEALTH INSURANCE GUARANTY CORPORATION ACT -- REVISIONS

  • Revises the Life and Health Insurance Guaranty Corporation Act.
  • Incorporates the 2017 changes to the NAIC’s Life & Health Guaranty Association Model Act (#520) whose purpose was to provide a mechanism to more fairly assess for receiverships involving long term care insurers.
  • Includes health maintenance organizations (HMOs) as assessable ‘member insurers.‘
  • Excludes coverage for a person who acquires rights to receive payments through a structured settlement factoring transaction.

Guaranty Fund Exclusion of Investors in Acquired Structured Settlement Payment Rights Is a Thing

The Maryland move is part of a trend to exclude such investors and rightly so, in my opinion. According to the National Association of Life and Health Guarnty Associations (NOLHGA) "State life and health insurance guaranty associations provide a safety net for their state’s policyholders, ensuring that they continue to receive coverage (up to the limits spelled out by state law) even if their insurer is declared insolvent. Working together through NOLHGA, the guaranty associations form a national safety net, protecting insurance consumers all across America in their time of need". 

Acquired structured settlement payment rights are often marketed to investors using terms such as SMA, SMIA, recycled structured settlements, used annuities and by the tertiary market scam label "secondary market annuities" (even though these instruments are most certainly not considered annuities, according to case law and the National Association of Insurance Commissioners).

Those marketing efforts have unfortunately have included a few corpulent "wolves in sheep's clothing" settlement planners who potentially endanger their personal injury victim and attorney clients with their intentional misrepresentation of such investments. Guaranty Fund coverage is limited as it is.

Clearly the purpose of the state guaranty laws is protect insurance consumers. Investors are not insurance consumers because what they are buying is not insurance.

Fiduciary Duty

Trustees of trusts for injury victims and fiduciary financial advisors also need to be vigilant of the new Maryland development and that it is reasonably foreseeable that the trend of exclusion of investors in acquired structured settlement payment rights will continue.

Postscript: As of July 2023, 80% of USA states had adopted the 2017 Revisions to the Life & Health Guaranty Association Model Act (#520), which contains the aformeentioned exclusion.

 

 

 

 

Posted at 08:42 AM in Annuity News, Cons of "Secondary Market Annuities", Maryland Structured Settlement Investments, Maryland Structured Settlements, MD Structured Settlement Investments, Oregon Structured Settlement Investments, Oregon Structured Settlements, Risks of Investing in Factored Payments, South Carolina Structured Settlements, Structured Settlement Definitions, Structured Settlement Factoring Auction Sites, Structured Settlement Information, Structured Settlement Transparency Initiative, White Plains Structured Settlements, WV Structured Settlements |

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August 16, 2011

"Witch Hunt" for In Force Structured Settlements Purchasers?

by Structured Settlement Watchdog

Apparently someone has a "bee in their bonnet" for structured settlement brokers who purchase structured settlement payment rights. judging solely on records of a Google search for "list of structured settlement brokers who purchase in force contracts".

Greg_sleeping_alarm_clock_md_clr If the searcher is in the structured settlement industry then I tell him or her to wake up. Given the fact that financial planners are well organized and marketing acquired structured settlement payment rights why are you wasting your time?

The focus should be on:

  • Enforecable secondary marketplace standards regarding solicitation of structured settlement annuitants. Does the same or similar standard that applies to marketing to seniors apply here? I know I've been barking about this for years. But where are we?
  • Understanding the difference between obligations to a buyer of structured settlement payment rights versus the obligations to the seller of structured settlement payment rights.
  • The obvious potential conflict of interest if you represent a buyer of a structured settlements that you placed.

Something the industry should be thinking about...

What are the ethical considerations for a structured settlement broker or a plaintiff attorney buying structured settlement payment rights from his own client if the amount of cash offered exceeds that which can be obtained in the secondary market?

Personal injury attorneys are already buying structured settlement payment rights (although there is no evidence that it is from their own clients) deals and as I've reported recently one in Florida even advertises that he buys structured settlement payment rights and has published on the subject. The ship has already sailed folks.

Learn from another legal market segment. In 2005, shortly after a prominent Buffalo New York attorney's law license was suspended for 6 months for  "advancing financial assistance to clients in a matter not related to the expenses of litigation"   the entire pre-settlement funding industry exploded. Some actively practicing New York plaintiff attorneys have financial interests in these companies and/or invest on pre settlement loans on a case by case basis.

The American Legal Finance Association  (ALFA), was founded in 2004 to anticipate and respond to issues arising in the emerging legal finance industry, especially in areas related to ethical and transparent business practices.  In addition to its work in this area, ALFA strives to become the liason with the public and the media so that they may better understand the true nature of the non-recourse legal finance industry, as well as the service its member-companies provide.

A number of pre settlement funders are already in the structured settlement primary market directly or indirectly, via investment.

 

 

 

 

 

 

Posted at 07:21 PM in Atlanta Structured Settlement Investments, Boca Raton Structured Settlement Investments, Buffalo Structured Settlement Investments, Chicago Structured Settlement Investments, Houston Structured Settlement Investments, LA Structured Settlement Investments, MD Structured Settlement Investments, Miami Structured Settlement Investments, Montana Structured Settlement Investments, NJ Structured Settlement Investments, PA Structured Settlement Investments, Palm Springs Structured Settlement Investments, San Diego Structured Settlement Investments, Structured Settlement Brokers, Structured Settlement Payment Rights, TX Structured Settlement Investments | | Comments (0)

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Guide to Structured Settlements 2024

  • What is a Structured Settlement? What You Need to Know
    Structured settlements and what you need to know about them including a helpful introductory video featuring A.M. Best Client Recommended Structured Settlement Expert and Registered Settlement Planner John Darer of 4structures.com LLC
  • How Do Structured Settlements Work? How Structured Settlements Work
    How structured settlements work, including 4structures.com LLC's super helpful structured settlement flow chart/diagram showing how structured settlements fit in on the spectrum of settlement planning solutions.
  • Rated Ages and Structured Settlement Cost
    Rated Ages for Structured Settlement Annuities present advantages to all parties. Shift the mortality risk to a life insurance company whose business it it is to assess mortality risk to price its life insurance and annuities. Rated ages boost your structured settlement annuity benefit per premium dollar, or your yield on lifetime payments. Rated ages help to reduce the cost of funding a Medicare Set Aside arrangement where a Structured MSA, is being used { WCMSA LMSA or NFMSA].
  • Top Structured Settlement Annuity Companies 2024
    Which life insurance companies issue structured settlement annuities in 2024? A list of current structured annuity issuers, the location of their home offices and their financial ratings from A.M. Best, Moodys, Fitch, Standard & Poors and/or other Tier1 NAIC ratings, with links to their websites and other useful information. Last updated June 14, 2024
  • Treasury Funded Structured Settlements
    Treasury Funded Structured Settlements are a settlement option for the most conservative using the OTHER permissible qualified funding asset under IRC 130(d), United States Treasury Bonds in addition to, or instead of, structured settlement annuities. Treasury Funded Structured Settlements can also be used to fund installment sales, also known as structured sales and other non qualified structured settlements.
  • 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.
  • iStructure |Uncapped Fixed Index Structured Settlement Annuity
    iStructure is an innovative game changing fixed index structured settlement annuity for plaintiffs or attorneys. with an intermediate to long term horizon
  • 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.

Qualified Settlement Funds

  • What is a Qualified Settlement Fund?
    Qualified Settlement Funds | What You Need to Know
  • 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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    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. Subscribe to the structured settlement blog feed, or a specific category feed through your blog reader, or through the Subscribe button at the top left of this page. Followers of JDDarer™ on Twitter may also receive select content. If you would like to speak with John he can be reached at (888)325-8640 Thank you for reading! Last updated July 10, 2024

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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.
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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.

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