by Structured Settlement Watchdog
What the Heck is a " Refactored Structured Settlement"?
Refactored Structured Settlements is the creation by some to inartfully describe investments in transferred structured settlement payment rights from other people's structured settlements. The term is used by structured settlement consultants, settlement planners and such, when used as an alternative investment vehicle to a settling plaintiff. The purpose of this post is to set the record straight and to to keep the information highway clear.
- A structured settlement factoring transaction is defined under at IRC § 5891 (c)(3)(A) as "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".
- There is no transfer of an annuity or insurance product.
- It is worth noting that I.R.C. § 5891(c)(1) separately defines the term structured settlement as "an arrangement which is established by suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2), or agreement for the periodic payment of compensation under any workers' compensation law excludable from the gross income of the recipient under section104(a)(1), and under which the periodic payments are of the character described in subparagraphs (A) and (B) of section 130(c)(2), and payable by a person who is a party to the suit or agreement or to the workers' compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with section 130".
So, to boil it down:
- A structured settlement is an arrangement
- A structured settlement annuity is a customizable insurance product used as a qualified funded asset, which is defined at §IRC 130(d) as "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.
When "Re-" precedes any word, it suggests something has been re-done, re-manufactured or even re-structured. Think of a retread tire. Someone patches up an unroadworthy balding tire, re- treads it and out it goes onto another car. The end product is still a tire!
We're talking two different things in this case:
To sum up
- A transfer of structured settlement payment rights is not the transfer of an annuity or an insurance product or the creation of a new insurance product. There is no "re-tread" going on.
- An investment in structured settlement payment rights is not an investment in an annuity. It is an investment in a receivable.
- An investment in structured settlement payment rights is not an investment in a structured settlement.
For the benefit of consumers, let's keep the structured settlement information highway clear of inaccurate terms.