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

Structured Settlement Annuity Issuers with A Ratings from Weiss Research

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Two life insurance companies that issue structured settlement annuities have earned A- or better ratings from Weiss Research

• New York Life Insurance Company A-
• Pacific Life Insurance Company A-

"Weiss insurance ratings outperformed 3 to 1." United States Government Accountability Office (GAO) 

Weiss Ratings | John Darer Reviews What is a Weiss Rating? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com)

 

 

Last updated February 11, 2024

The Personal Injury Victim's Dilemma | Managing Expectations of Others

by John Darer CLU ChFC MSSC CeFT RSP CLTC

It's Your Settlement and Everyone Wants Your Money Now

Personal injury victims may face the post settlement dilemma of "It's Your Settlement and Everyone Wants Your Money Now". It may feel isolating at times. Working with a settlement expert who is also a Certified Financial Transitionist can be helpful to help you manage expectations of family, friends and others and to help sort through, organize, prioritize and help make it easier to process your options. John Darer from 4structures.com LLC, a Settlement planning expert and Certified Financial Transitionist, covers the issues in this introductory video.

What is a Certified Financial Transitionist (CeFT)?

CeFT holders are experienced financial professionals who understand how life transitions change financial situations.  It is a level up designation in that CeFT designees must also have earned and maintain at least one other highly respected professional designation such as the CFP, CIMA, ChFC, CDFA, CPWA, CPA/PFS, or CFA. 

CeFTs have the comprehensive knowledge and skills necessary to guide clients through a variety of transitions. When they meet with clients, CeFT holders show empathy and know how to listen carefully to their unique needs and emotions so they can make appropriate recommendations.

During their 12-month training program through the Financial Transitionist Institute,a division of the Sudden Money Institute, CeFTs become well-versed in the four stages of transition and use them and different tools to guide their clients through a successful transition during the uncertain and often chaotic times they’re facing. CeFT's have ongoing education requirements to maintain their skills and fluency in the subject matter. 

With their support, you’ll be able to make smart financial decisions that lead to a happy future and help you avoid money problems down the road. Unlike a traditional financial advisor, a CeFT will understand the emotional side of your situation and keep it top of mind when they make recommendations and guide you through your transition. 

They can prevent you from making emotional, rather than logical financial choices that take a toll on your finances. Whether you’re anticipating a life transition or found yourself facing one unexpectedly, a CeFT can be a valuable resource and thinking partner. 

Sources:  Sudden Money Institute,  Wealthtender.com

Video copyright:  4structures.com LLC

Last updated May 14, 2024

 

Structured Settlements | The Wonderful World of Structured Settlements

by John Darer CLU ChFC MSSC CeFT RSP CLTC

I see streams of green, lump sums too; tax-free payments for you, you and you; and I think to myself, what a wonderful world, ohhh yeah.

The "streams of green" are a perfect metaphor for the stability of structured settlement payments what that represents

I saw this wonderful image from the Robert Harding library taken from the middle of a mangrove forest, in Quang Ngai, Vietnam, that captures the essence of structured settlements in a perfect metaphor "Streams of Green".

How Can Structured Settlements Be Used?

"Streams of Green", as in customized payment streams of money that can individually, in parallel, or in conjunction, be used:

• to replace lost income
• to give a young adult a baseline as they enter the work force
• to quantify and provide a source of funding for future medical expenses
• to help fund custodial care
• or housing
• to help fund college education, grad school, a wedding, down payment on a future home, seed money for a business
• for funding a Medicare set aside at a significant discount
• to fund legacy gifts to children and grandchildren (no matter what happens)
• to smooth out uneven cash flows for a law practice
• to fund premiums for life insurance or long-term care insurance, or to create legacy wealth and much more.

The interposed blue-sky reflection on the water add to the optimism that this image represents at a time when some need hope and a reason for optimism.

The lyrics of the 1967 song, "What a Wonderful World", which I've [parodied above, were written by Bob Theile (as "George Douglas") and George David Weiss, and first recorded by Louis Armstrong ("Satchmo") during the Vietnam War amid turmoil in the 1960s, talks about the beautiful things of the world such as the blue skies, the beautiful colors of the rainbow, the warmth and friendlessness most people show each other, the lovely cries of babies, etc.

Despite the numerous heartbreaking things that happen around us on a daily basis, the song’s lyrics try to make the listener understand that despite the ugly part of the world, the world also has beautiful side that is totally worth appreciating. Owing to the sheer power and beauty of the song, it has over the years been used to try to bring people of different races together.  Read more at: https://www.songmeaningsandfacts.com/meaning-wonderful-world-louis-armstrong/.  It appeared on the soundtrack of the 1988 movie Good Morning Vietnam, after which it was reissued as a single, rose to 32 in the Billboard Hot100 and Louis Armstrong's recording was inducted into the Grammy Hall of Fame in 1999.

What is a structured settlement?

 

 

 

 

 

 

Structured Settlement Annuities Are Not Tax-Free Insurance Contracts | Wait! What?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Tax-Free Structured Settlement Annuity |  No Such Thing

John Darer reviews the term "Tax Free Structured Settlement Annuity", which you may encounter on the Internet. Be mindful that there is no such thing as a Tax Free Structured Settlement Annuity. 

Don't worry annuitants, there IS a tax exemption, but not exactly the way it's being presented in many cases by competent settlement practitioners and reputable settlement companies that should know better. Please read on for clarification of what is tax-free.

Examples:

• One settlement planner's website says "Structured settlement annuities are not taxable — they're completely tax-exempt"
• Another settlement planner's website says "Tax-free Income: 100% of structured settlement annuity is tax-free – including the settlement award, principal, ongoing payments and interest earned".
• "a tax-free structured settlement annuity to meet medical and living expenses, or other financial planning tactics".
• "A tax-free structured settlement annuity qualifies for special tax treatment under IRC §§104(a)(2) and 130(c)"
• "A claimant cannot accept a cash settlement and then purchase an income tax-free structured settlement annuity on his/her own"
• The best time to start preparing for your financial future is right now. Consider the many advantages of a Tax-Free Structured Settlement Annuity.*"
• " I work with the Tax Free Structured Settlement Annuity Product and Various Trust products"
  

The Damages That the Structured Settlement Payments Represent is The Key

While some of the incorrect statements by some settlement planners may seem plausible, it is the nature of damages that the structured settlement payments represent that is a critical factor, not the structured settlement annuity contract itself. 

Think about the applicable tax code sections cited in every settlement agreement that involves a structure.  The word "annuity" does not appear in IRC Sections 104(a)(2) or IRC 130(c). 

"Annuity" appears in IRC 130(d), which  provides the requirements an annuity must meet to qualify as a qualified funding asset, including the requirements that (i) the periods of the payments under the
annuity contract are reasonably related to the periodic payments under the qualified
assignment, and (ii) the amount of any such payment under the contract does not
exceed the periodic payment to which it relates.

Furthermore, a structured settlement annuity is a versatile insurance contract that can be used for a variety of applications, including structured settlements being used as a funding vehicle for settlements involving periodic payment of taxable damages and structured installment sales. 

I encourage my industry colleagues to take greater responsibility, hopefully with the recognition that inaccurate statements end up getting parroted or cited by others.

See my comprehensive write up on Settlement News Network What's a "Tax-Free Structured Settlement Annuity"? (4structures.com)

Please note that other factors may apply such as avoiding constructive receipt.Constructive Receipt is Game Over for Structured Settlements (4structures.com)

Last updated July 17, 2024  

Does a QSF Need to be Established in Order to Structure or Defer Attorney fees?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

 

Does a Qualified Settlement Fund Need to be Established in Order to Structure or Defer Attorney fees? 

As an initial matter, it is not necessary to establish a qualified settlement fund in order to structure or defer attorney fees. 

 

There are a few settlement planners who aggressively push qualified settlement funds and misrepresent that "it's the only way" for you to benefit from structured attorney fees or other attorney fee deferral programs.  To say categorically that "it's the only way", is rubbish. There are many attorney fee deferral options that do not need a QSF.

• Read more about Qualified Settlement Funds
• Read more about Attorney Fee Deferrals and Structured Attorney Fees

Consider the facts and circumstances before you act.

 

 

Do You Name a Structured Settlement Beneficiary Or Do Payments Get Inherited Through Your Will?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Should You Name a Structured Settlement Beneficiary With the Structured Settlement Annuity Issuer, or Should Payments Just Get Inherited Through Your Will?

Once again, I'm scratching my head at the output of the settlement purchasing company that is currently believed to be the only member of the National Association of Settlement Purchasers with a related entity that has agency relationships with structured settlement annuity issuers and brokers structured settlement annuities in the primary market. 

Structured settlement beneficiaries Name them, Confirm them and Repeat as Necessary

In the process of soliciting people to sell their structured settlement payments the New York company states in a blog:

"A loved one left you their future structured settlement payments in their will, and you’re wondering what you can do with it. Maybe you have a business opportunity, or you are interested in purchasing a house. You might be facing an emergency and looking at your options to cover that sudden expense. So, can you sell this asset? The short answer is yes. If you inherited a structured settlement, that means you now have the rights to it, and to the future payments. And in situations where you have a financial need, you most likely qualify to sell some or all of the future payments from the inheritance for a lump sum in cash" Source: CrowFly website

While someone could name a beneficiary of structured settlement payments in their will, it is certainly not the norm and probably not advantageous to do so

Here's why:

1. Naming a beneficiary with the structured settlement annuity issuer is easy and simple. You fill out a beneficiary designation form and you file it with the insurer, checking to confirm that your wishes have been recorded. Your signature may need to be notarized.
2. You can name and change primary and contingent beneficiaries and their respective shares/percentages at any time, as long as such changes are in writing and in the proper format accepted by the insurance company that issues the structured settlement annuity.
3. Naming a beneficiary with the structured settlement annuity issuer means that the proceeds will begin to flow directly to your beneficiaries without delays and costs associated with probating an estate. It's the matter of completing a claim form and providing a copy of the death certificate. 
4. Death proceeds that pass through the probate estate are subject to executor/executrix fees (if there is a will), administrator/administratrix fees (if there is no will)
5. Death proceeds that pass through the probate are subject to claims of creditors of the Estate. 

Where might you find future structured settlement payments going into an Estate?

• If you fail to name a beneficiary for your structured settlement, or the beneficiary you name is not living at the time of your death, and you have not named a contingent beneficiary, payments will default to your Estate.
• If the payments are going to a trust, such as Special Needs Trust or Supplemental Needs Trust, your structured settlement has a full commutation provision at death and there is an abundance of cash that exceeds the Medicaid payoff, payment will be distributed subject to terms of the trust. 
• A number of structured settlement annuity issuers, including Berkshire Hathaway Life Insurnace Company of Nebraska, First Berkshire Hathaway Life Insurance Company and Independent Life Insurance Company will allow a beneficiary designation that allows a partial commutation based on a notice of shortfall in the trust assets to satisfy amounts owed to Medicaid and/or Estate taxes. The balance would go to named beneficiary or beneficiaries, or the Estate (if no beneficiary has been named, or if a beneficiary has named, but no contingent beneficiary has been named at the time of the annuitant's death).
• If you are selling (or have sold) part of a lump sum structured settlement payment to a settlement purchaser such as CrowFly, and the annuity issuer will not split annuity payments, payments will be subject to a payment servicing arrangement. It's really important that anyone entering into a structured settlement factoring transaction where payments are being serviced and where the seller is only doing a partial sale, to name and confirm in writing both a primary and contingent beneficiary.

4structures.com LLC has a number of resources about the wisdom of naming a structured settlement beneficiary

Why It's Important to Name a Beneficiary on a Structured Settlement Annuity

Structured Settlement Beneficiary Designations| The Beneficiary Mantra

 

Can Insurer Enforce This Structured Settlement?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

At the end of a mediation, the mediator conveys a settlement offer from the Insurer or insurer's representative on behalf of its insured, the Defendant, with a fixed dollar amount that supposedly requires, for no rhyme or reason, that a nominal amount be structured "any way the plaintiff wants it". Let's say that number is $100,000. Neither the insurer, nor the insurer's representative, has conveyed any specific structured settlement proposals or illustrations as part of its offer and no specific periodic payments were ever discussed. 

Questions

• Can an offer that simply requires the Plaintiff to structure a fixed amount of money "any way that he/she or they want it" be enforced?
• If so, how would you enforce the structured settlement when the terms of the structured settlement are not specified? 

Elements of a Structured Settlement (assume personal injury case for this example)

1. Promise to Make Periodic Payments as Partial Consideration for a Release of all Claims
2. Qualified Assignment, Substitution of Obligors, pursuant to IRC 130. Defendant or its Insurer pays money to Assignment Company which then
3. Purchases Annuity Contract as Qualified Funding Asset from which payments may be made directly to the Plaintiff, Plaintiff's trust, or Medicare Set Aside account.

The Nature of Settlement Negotiations

The nature of negotiations means that the Defendant or insurer is free to make a settlement offer in any manner they wish, to which the plaintiff is free to accept or reject and/or counter.  The Plaintiff can demand anything they want in any form they want, to which the Defendant or insurer can accept, reject and/or counter.

• A thoughtful, detailed and transparent offer that shows that an effort has been made to understand the plaintiff's situation is an effort to address actual needs is an engaging path on which to build
• Vague offers, such as an unspecified structure with simply a requirement to allocate a certain sum of money could lead to credibility problems, in my humble opinion. There are better ways of "getting to yes"

If the plaintiff has really short-term needs, those needs, if structured, might even produce a negative rate of return in the current environment.  Not only is that bad for the plaintiff now, but if the plaintiff were to subsequently seek to sell structured settlement payment rights in the secondary market to address the short-term needs and a judge approves, it would exacerbate the negative return due to pennies on the dollar erosion from factoring payments.  Not very good for them and not very good PR for the stakeholders.

While the plaintiff can certainly structure it out for a longer period of time to create a positive return, it may not be "any way he/she/they) want"

Then there is the issue of the casualty company approved list of annuity issuers.  If "any way he/she/they want" has restrictions that should be disclosed up front

 

 

 

"My Structured Settlement Payments Are Late' What Happened?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Structured settlement payments should not be late, "for their very important date", with you.

 

If payments are sent by mail, the annuity issuer will usually mail the payments to your address of record 5-10 days prior to the due date. 

• It is important and a requirement of most settlement agreements that the structured settlement payee is responsible for notifying the annuity issuer or qualified assignment company of any change of address.
• If your structured settlement was set up when you were a child and you've moved, be sure to confirm that the annuity issuer or assignee has your current mailing address.

Telephone numbers of current and former structured settlement annuity issuers

• If payments are made by direct deposit, which is the preferred and most reliable method of receiving your structured settlement payments, your payments are made directly into your bank account on record on the date payments are due. The funds should be available on the date of deposit, depending on your bank's polices.  
• If you have previously sold some of your structured settlement payments and your payments are being serviced (subject to a servicing agreement) then you may need to contact the servicing company to make such changes. 
• If you have multiple structured settlement annuities review the paperwork associated with your structured settlement transfer carefully.  It is possible that you sold payments from one annuity and not the other so more than one of the above options may apply.

What Is A Structured Settlement Annuity? | Separating Fact From Fiction

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What is a Structured Settlement Annuity?

• A structured settlement annuity is insurance product that (1) can provide multiple payment streams, as well as (2) different types of structured settlement payments,  in a single annuity contract that can be customized to a person's needs.
• A structured settlement annuity is often (but not exclusively) used as a "qualified funding asset", as the latter term is defined by IRC 130(d).
  

What is a Qualified Funding Asset?

For purposes of IRC 130(d), 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, if—

(1)  such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,

(2) 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,

(3) 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

(4) 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.

 

It should be noted that the term "structured settlement annuity" does not appear in IRC 130(d).

 

Examples of Where a Structured Settlement Annuity Would Not Be Used as a Qualified Funding Asset 

 

A structured settlement annuity can be used in cases involving taxable damages.  A non-qualified assignment is used in such cases  (or parts of cases) involving such damages.

 

Examples of What is NOT a Structured Settlement Annuity

• Acquired structured settlement payment rights  (the rights to someone else's structured settlement).  See the National Association of Insurance Commissioners' statutory issue paper No. 160, issued April 6, 2019.  Plaintiffs, Counsel, Guardians Ad Litem, Probate and Surrogate judges and investors, should be leery of any attempt by a settlement planner or financial adviser to pass off the direct or indirect acquisition of factored structured settlement payment streams as a structured settlement annuity.  Such unregulated products carry higher risks than structured settlement annuities and may not have the same statutory protections.
• A retail single premium immediate annuity is an annuity, but it is not a structured settlement annuity
• A retail single premium deferred annuity is an annuity, but it is not a structured settlement annuity
• A retail deferred index annuity is an annuity, but it is not a structured settlement annuity
• A retail fixed index annuity is an annuity, but it is not a structured settlement annuity

None of these becomes a structured settlement annuity just because it is owned by an independent assignment company.

What Do Structured Settlement Annuity Issuers Say?

A quick survey of insurance companies underwriting structured settlement annuities shows that about half of them specifically identify with structured settlements. Not a single one would sell a structured settlement annuity to an independent assignment company.  

1. The Prudential Insurance Company of America

Single Premium Structured Settlement Annuity Certificate

2. Pacific Life Insurance Company/ Pacific Life and Annuity Company  (New York)

Single Premium Settlement Annuity

3. USAA Life  Insurance Company  

Single Premium Immediate Annuity  (For Use as a Funding Asset in Structured Settlement Assignments)

4. New York Life Insurance Company

Lists Plan as Structured Settlement on contract

Others do not.

Would any structured settlement annuity issuer sell a structured settlement annuity to an independent assignment company?

None of the structured settlement annuity issuers that we canvassed for this post on November 2, 2021 would sell a structured settlement annuity to an independent assignment company.

Assignment Fees

With one exception, Qualified Assignment fees will not be over $750 for a true structured settlement annuity

You may find some independent assignment companies charging higher fees, perhaps even asset based qualified assignment fees that are a significant multiples of what the insurance company subsidiary qualified assignment companies charge.

Last updated August 19, 2023

 

What is an Assignment Fee in a Structured Settlement? Avoid High Hidden Asset Based Assignment Fees

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Background on Assignments When a Structured Settlement is Established

There are two types of assignments that may be used when a structured settlement is established, a qualified assignment and a non-qualified assignment

An assignment, whether qualified or non-qualified, is the second step in most structured settlements. It is the step that occurs after the parties have agreed on a schedule of future periodic payments. How Structured Settlements Work | Structured Settlements Explained (4structures.com)

While structured settlements are generally supported by Defendants and Insurers who want to do the right thing, few Defendants or insurers will be receptive to a long tail contingent liability for the duration a structured settlement.

What is a Novation?

A novation is an agreement made between two contracting parties to allow for the substitution of a new party for an existing one. The assignment is a substitution of obligors from the Defendant, Insurance Company or Qualified Settlement Fund to the assignment company. The assignment company receives a certain amount of cash for taking on the assignment of future periodic payment obligations, deducts its assignment fee and then buys the funding instrument. In a qualified assignment these are called qualified funding assets and are mostly structured settlement annuities, but also could be United States Treasury obligations. Market based structured settlements are generally done by way of a non qualified assignment.

What are typical assignment fees with structured settlements?   

• Qualified Assignment fees from assignment companies related to structured settlement annuity issuers range from $0-750
• Non qualified assignment fees typically range from  $500-$1,400, with higher fees for independent assignment companies, not affiliated with insurance companies.

What consumers need to watch out for

Watch out for hidden excessive assignment fees

Asset based qualified and non qualified assignment fees can run upwards $10,000 on a $1,000,000 case. That's a pretty heavy cost to bear. It's way more than a normal assignment fee. The fees may not be disclosed and simply built in to the illustrated cost of the structure.  What you, or your lawyers may encounter is obfuscation by multiple layers of complexity. That's not good. 

Let's say for example that you worked with a settlement planner who recommends a MassMutual annuity for a
asset.  But unknown to the plaintiff or their attorney, MassMutual Life Insurance Company hasn't written structured settlement annuities for about fifteen years and they have no assignment company anymore.

So a wily settlement planner may use an independent assignment company to take on the periodic payment obligation from the Defendant, Insurer or qualified settlement fund. The independent assignment company may charge an asset based assignment fee, The settlement planner makes a commission on the sale of the annuity and the client gets walloped with the outsize assignment fee. 

It gets even more squirrely if the settlement planner has a direct or indirect ownership interest in the assignment company.   

Like the chorus of the 2002  Grammy Award winner from Santana featuring Michelle Branch "a little bit a this, a little bit of that", but it ain't no "game of love" baby.