David Klasing | "Any Disadvantages to a Structured Settlement Agreement?"

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Irvine California tax attorney David Klasing made an attempt to answer the above question in 2014.  There are a number of errors in the still live posting on the Orange County law/accounting firm's website that still comes up in search results. I offer some commentary on that post in a effort to correct those errors.

1. Klasing places much emphasis is placed on the fact that the plaintiff cannot own the (structured) annuity. While true, the reality is that no structured settlement annuity issuer would even issue a structured settlement annuity with an individual annuitant listed as annuity owner. Even if paperwork were submitted with the annuitant as owner, it would be rejected, and no policy would be issued. This is nothing new. That's the way it has been for almost 40 years. 
2. Klasing alleges, in part incorrectly, that the plaintiff typically cannot alter the amount of annuity payments (he, she, or it-in the case of a trust, receives), when there has been a process in place in California to do just that, since October 11, 2009.  Sale or transfer of structured settlement payment rights in exchange for a lump sum of cash is permitted provided the structured settlement transfer complies with state law.  Provided the law is complied with the annuitant effectively reduces the payments he, she or it receives.
3. Klasing errs in stating the plaintiff typically has no rights to the annuity greater than that of an unsecured general creditor when, since 1988 (26 years prior to Klasing's still published posting), the footnote to IRC 130(c) reads "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".  
   

Structured settlements provide a customized stable source of income that is income tax free for damages on account of personal physical injury, physical sickness, wrongful death [subject to IRC 104(a)(2)], workers compensation [subject to IRC 104(a)(1)] and wrongful conviction/imprisonment [ subject to IRC 139F]. I like to use the metaphor of a "job you can never be fired from". The stable income can be helpful to rebuild financial lives, replace income from a former job, or the income contribution of a deceased spouse. It can help a college graduate get started in life without having to share a place with 3 people or work 3 jobs by necessity and have the stability to afford to take a lower paying internship or training program with good potential.

 

Last updated November 5, 2022