Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Who Owns a Structured Settlement Annuity?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Who Owns a Structured Settlement Annuity?

The majority of structured settlement annuities are owned by qualified assignment companies not the payees of the structured settlement.  The structured settlement annuities are purchased as a qualified funding asset subject to the terms of IRC 130(d). All structured settlement annuities used to fund taxable damages or attorney fees purchased are purchased by a non-qualified assignment company as part of a non-qualified assignment. As such they may be owned by a company specializing in non-qualified assignments.

A case in point would be American General Life Insurance Company and United States Life Insurance Company in the City of New York, subsidiaries of Corebridge Financial (formerly AIG Life & Retirement), which use AGL Assignment Company LLC for non qualified assignments. Where a qualified assignment is to be utilized, American General Annuity Services Corporation is the qualified assignment company. Another example is Independent LIfe Insurance Company which uses different assignment companies for qualfied and non-qaualified assignments,

In the case of MetLife Assignment Company, Inc, MetLife's assignment company owns structured settlement annuities funding both tax-exempt and taxable damages. 

Merchants of Factored Structured Settlement Payment Rights/Receivables Often Get It Wrong

Merchants of factored structured settlement payment rights mislabel factored structured settlement payment rights to prospective investors and to financial advisors, who may then market the mislabeled receivables to investors incorrectly as annuities.

Immediate Annuities (Dot) Com, a New Jersey broker of structured settlement payments and one of several companies that conducts such business using the debunked label  Secondary Market Annuity, which is not an annuity at all.  

Immediate Annuities (dot) com states, inaccurately, that  "A Secondary Market Annuity (also called an 'SMA') refers to a transaction in which the current owner of an income annuity sells his future income steam to a third-party in exchange for a lump-sum payment. Annuity income streams most commonly originate from lawsuit settlements, lottery winnings, or immediate annuities".

Immediate Annuities (dot ) com is not correct because it inaccurately suggests that a structured settlement payee is the owner of the income annuity funding a structured settlement. In fact, nothing could be further from the truth when it comes to structured settlement ownership.

It's hard to believe that Immediateannuities.com continues to use the debunked term "Secondary Market Annuity" or its plural "Secondary Market Annuities" when

1. The National Association of Insurance Commissioners does not recognize acquired structured settlement payment rights as annuities or insurance product.  See Statutory Issue Paper No. 160, which was finalized April 6, 2019.
2. There is no protection for investors in the event of insolvency in the 37 states that have adopted the 2017 Revisions to the Life & Health Guaranty Associations Model Act (#520). Investors should not feel comfortable in the 13 states that have yet to adopt, because the Model Act has a reach back provision that applies to such acqusitions before or after the adoption of the 2017 Revisions in a state.
3. Past and ongoing litigation that in some cases HAS resulted, and in pending cases MAY result in losses for investors in structured settlement payment rights. 

Pay Attention to the Settlement Agreement and Release!

A settlement agreement establishing the structured settlement will expressly state that the assignment company has all rights of ownership of the annuity. The structured settlement payee only owns the right to receive the periodic payments from a structured settlement as part of the consideration for a release of liability. The payee does not own the structured settlement annuity. It is the structured settlement payment rights that are transferable as long as the transaction complies with state and Federal law.

Last updated January 30, 2024

 

How to Use Structured Settlements in a Divorce Settlement

by John Darer® CLU ChFC MSSC RSP CLTC

What is a Divorce Structured Settlement?

Having the stable income stream that a structured settlement provides, as a foundation, can be helpful in a financial transition to the new normal

The parties negotiate the terms of settlement of marital property.

The Paying Spouse agrees to settle the marital property interest in the form of  periodic payments to the Payee Spouse. The Divorce Settlement Agreement creates an obligation for the Paying Spouse to make the negotiated periodic payments for a stated number of months or years.

Following the execution of the Marital Settlement Agreement, the Payor Spouse assigns his/her periodic payment 0bligation to an assignment company. 

In this case we are speaking of a non qualified assignment. The Payor Spouse transfers a lump sum, representing the discounted value of the payment stream due under the Marital Settlement Agreement. In return, the assignment company agrees to assume the Payor Spouse’s payment obligations. The assignment company is a subsidiary or an affiliated company of a highly rated life insurer which issues the annuity contract to the assignment company, which makes all periodic payments required by the Marital Settlement Agreement. In this way, the Recipient Spouse will not be financially dependent on the Payor Spouse, but rather, on a highly rated, well-capitalized life insurer.

When Does a Divorce Structured Settlement Work Best?

• A divorce structured settlement works best if there is enough liquidity in divisible assets and/or the Paying Spouse has sufficient resources  to fund a future payment stream for some element of the divorce today. This is critical to get off squere one; 
• Where the amount of  future payments can be quantified at the time of settlement.  One cannot for example quote a divorce structured settlement for  a payment that may vary from one payment to the next, or may otherwise vary over time;  AND
• Where the Recipient Spouse would like the security of core income stability that is unaffected by the Paying Spouse's employment status, solvency or income reporting integrity.
• Where the Recipient Spouse would like the security of core income stability that is  unaffected by the death of the Paying Spouse.
• Where the Paying Spouse and the Recipient Spouse want to keep things simple.  

Read more about Divorce Structured Settlements

Divorce Structured Settlements 888-325-8640 | 4structures.com

 

Last updated May 18, 2024

 

 

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Last updated October 1, 2024

What is an Annuity Payment?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What is an Annuity Payment?

An annuity payment represents the liquidation of principal and interest under an annuity contract.  An annuity payment can be made by check, or direct deposit to your bank account.

What is an Annuity Contract?

An annuity contract is a financial agreement between a life insurance company and its customer outlining each party's obligations. The customer pays a lump sum to the life insurance company as consideration for the promise to make payments in the future. Among other things, the annuity contract sets forth the amounts of payments, the mode of payments (e.g. monthly, annually, deferred lump sums) and the timing and duration of payments.

How Does a Structured Settlement Annuity contract differ from a Retirement Annuity?

With a structured settlement annuity contract, the annuity is typically applied for by a qualified assignment company as a "qualified funding asset" pursuant to IRC 130(d), or by a non qualified assignment company when resolving other types of cases. The qualified assignment company, or non qualified assignment company,  has assumed periodic payment obligations pursuant to a settlement agreement resolving a legal dispute or claim.  While the annuitant or payee owns the right to receive payments, he/she/it is neither the
or owner of the annuity contract.

Read more What Are Structured Settlement Annuities? Structured Settlements FAQ (4structures.com)

Who Regulates the Sale of Annuity Contracts to Consumers?

The solicitation of annuity contracts is regulated by your state insurance department*.  An active insurance license is required to be authorized to solicit consumers and place annuity contracts.  

• The life insurance company that issues the annuity contract must be licensed as an insurer in your state.
• The specific contract form for the annuity must be filed by the life insurance company with the state insurance department and approved for sale in  your state. Do not buy a contract that is not for sale in your state.
• Annuity contracts can only be sold to consumers by licensed life insurance agents or licensed life insurance brokers

* the solicitation and placement of certain types of annuity contracts, namely variable annuity contracts, also fall under watchful eyes of securities regulators.

Last updated July 21, 2024

 

 

 

An Annuitant, A Measuring Life, A Payee and a Beneficiary Walked Into A Bar And...

 

by John Darer® CLU ChFC CeFT MSSC RSP CLTC

An Annuitant, a Measuring Life, a Payee and a Beneficiary Walked Into A Bar and they Each Ordered a Beer. The question is how many beers does the bartender pour?

The solution to this structured settlement definition quandry is no different than that for someone seeking a solution to incontinence. Depends

What is an Annuitant?

The individual named under an annuity contact who will serve as the measuring life for the purposes of determining the benefits to be paid under a structured settlement annuity contract

What is a Measuring Life?

The human being or natural person whose life expectancy is the basis for the cost of a structured settlement annuity that is payable for life.

What is a Payee?

The individual or entity to which payments are due to be made under the structured settlement annuity contract

What is a Beneficiary?

The individual(s) or entity that is (are) due to receive a death benefit when the Measuring Life for a structured settlement annuity dies.

It's critical to note that in differing circumstances two or more of these could be the same individual or entity. The Bartender must pour a minimum of 2 beers because the annuitant, measuring life and payee could be one and the same. If that were the case they could not be the beneficiary.

Structured settlement brokers, settlement planners and their staffs, post-sale handlers at life insurers and lawyers,  have a responsibility to see that these are reflected accurately in structured settlement documents such as the Settlement Agreement and Release, Qualified Assignment, Annuity Contract, Pledge Agreement) if Applicable and Guarantee.

For more structured settlement keywords, terms and definitions please see the structured settlement glossary at 4structures.com

An Annuitant, a Measuring Life, a Payee and a Beneficiary Walk into a Bar...How many of me did the bartender pour?

 

 

 

 

 

 

 

 

 

Last updated April 2, 2024

Structured Settlements for CT Residents More Valuable Due to CT Income Tax Increase

by John Darer® CLU ChFC MSSC RSP  CLTC

Connecticut Budget bill (S.B. 1239), signed May 4, 2011  by Connecticut Governor Dan Malloy, will increase CT personal income tax rates retroactive to January 1, 2011

The new marginal income tax rates apply for those with taxable incomes of more than $100,000 for joint filers; $50,000 for single filers and married filing separately; and $80,000 for heads of households.  A legislative analysis of the budget, states S.B. 1239 does so by: 

• increasing the number of tax brackets from three to six;
• splitting the existing 5 percent bracket into four brackets and adding three higher marginal tax rates to that taxable income;
• increasing the top marginal income tax rate to 6.7 percent from 6.5 percent;
• and reducing the taxable income for the 6.7 percent rate bracket by half

The measure also phases out the lowest (3 percent) income tax bracket starting with Connecticut adjusted gross incomes of more than $100,500 for joint filers; $56,500 for singles; $78,500 for heads of household; and $50,250 for married couples filing separately.  The legislative analysis said it does so by subjecting increasingly less taxable income to the 3 percent income tax rate as Connecticut adjusted gross income increases and moving the phased-out taxable income to the 5 percent bracket.

Marginal increases in state income taxes increase the intrinsic value of a structured settlement, structured attorney fee or non qualified assignment  (taxable damage structured settlements) for Connecticut plaintiffs, CT claimants and CT Trial lawyers lawyers

Under current Federal tax law structured settlement payments that are for payment of damages for physical injury or physical sickness, or workers compensation,  are excluded from gross income under Section 104(a) of the Internal Revenue Code*.  There is also no state income tax for such payments. Structured attorney fees, employment structured settlements and other forms of non qualified structured settlements and assignments,  offer tax deferral options. 

For more details, contact  Connecticut settlement planning expert John Darer CLU ChFC MSSC  CeFT RSP at 203-325-8640

 

* Since 2016, Damages for wrongful imprisonment are also income tax free per IRC Section 139F. Wrongful imprisonment damages can be structured

Structured Settlement Lingo | What is A Qualified Assignment?

by John Darer® CLU ChFC MSSC RSP CLTC

A qualified assignment is an assignment of an obligation to make future periodic payments which satisfies the requirements of Internal Revenue Code §130. The periodic payments must represent damages payable by the defendant, its liability insurer, or a QSF and excludable under §104(a)(1) or §104(a)(2)

In a structured settlement agreement, the original obligor (the defendant, insurance carrier for the defendant, or the trustee of a qualified settlement fund, assigns its obligation to make the future periodic payments called for in the settlement agreement to a "qualified assignee". Generally, a qualified assignment company is a special purpose company, which does little more than hold an annuity as a qualified funding asset to back up the obligations it assumes from Defendants, Insurers or qualified settlement fund trustees. A qualified assignment company may actually be an insurance company itself. The qualified assignment company is usually related to the life insurance company issuing the structured settlement annuity. 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.

What is a Qualified Assignment? (4structures.com)

We've noticed that some in our industry state incorrectly (for example, see below) that the qualified assignment is "to a financially secure insurance company", or "an assignment to the life company".

"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".

Of the companies offering structured settlements only the qualified assignee of New York Life (New York Life Insurance and Annuity Corporation) is a life insurance company. That being said many annuity issuers provide a wraparound guarantee of periodic payment obligation assumed by the affiliated qualified assignment company.

 

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