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

Structured Settlement Established for Kentucky Schoolgirl Dragged by School Bus

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Structured Settlements For Minors News

In 2015, Aly Rednour suffered serious injuries when her knapsack got caught in the closing door of a Jefferson County Public Schools bus and the bus took off, dragging her nearly 1,000 feet. Rednour, a special needs child, suffered “disfiguring” scarring and nerve damage from the incident.

Travelers Indemnity Company, an insurer for Jefferson County (Kentucky) Public Schools agreed to pay the family of Ally Rednour nearly $5 million, according to the settlement agreement [ Source: Louisville's WDRB News March 9, 2022 including a video of the incident and an interview with the James "Bo" Bolus, the Louisville KY personal injury lawyer who represented the family.  The case settled last year, but was published in 2022.

More than $2.7 million of the settlement was paid in an up-front lump sum to Aly's family and their attorneys, according to the settlement agreement says the report. The rest will be structured and split funded, with $793,792

Structured settlements

going to MetLife Assignment Company, Inc.to fund a structured settlement annuity with Metropolitan Tower Life Insurance Company which will finance a trust fund through March 20, 2038, and $1.3 million will be paid to BHG Structured Settlements, which will purchase an annuity from Berkshire Hathaway Life Insurance Company of Nebraska (BNLN), to continue funding the trust from April 1, 2038, until March 20, 2088 according to the report.

Structured settlement annuities are excellent settlement planning tools to provide cash flow certainty where there is a need for certainty. 

Read more about Structured Settlements for Minors and Young Adults

 

 

Minors Personal Injury Settlements | The Negative Consequences of CDs v Structured Settlements

by John Darer CLU ChFC MSSC CeFT RSP CLTC

If You Bank It, Don't Bank on Maximum Financial Aid

Structured Settlements Avoid the Kiddie Tax and Can Be Designed To Minimize Impact on Financial Aid

Parents or guardians of minors who are receiving a settlement in a personal injury or wrongful death case, should give due consideration to how the settlement will impact the ability to receive financial aid for college.  Having a lot of money in a bank account, or in a CD coming due at age 18, could reduce or even eliminate, the possibility of receiving needs based financial aid.  Depending on the school, the FAFSA (for federal student aid) or CSS Profile (for institution based student financial aid) may be used. Each of those forms requires a significant percentage of student assets be used in its calculation of Expected Family Contributions (EFCs). At present that is 20% for FAFSA and 25% for the CSS Profile. 

Structured Settlement Annuity is Not an Asset of Minor

A structured settlement annuity is not an asset of the minor. The structured settlement annuity is owned by a qualified assignment company in most cases. In rare instances it is owned by the Defendant or Defendant's insurer. The minor only has the right to receive payments when due and would have had no control over the establishment of the structured settlement. Furthermore, in accordance with terms of the structured settlement and in compliance with tax code, the periodic payments cannot be accelerated, deferred, increased, or decreased, by the recipient of such payments".  [ see IRC 130(c)(2)(B)]

Tax Difference Between Structured Settlements and CDs

Damages for personal injury or wrongful death are income tax free,  subject to IRC 104(a)(2). While a lump sum from a personal injury or wrongful death settlement would be income tax free,  the interest on a lump sum invested in bank CDs would be taxable. So, for example if you have a 12 year old son and invest in a 5 year CD with Barclay's at time of posting, it would earn 2.75%. The 2.75% would effectively be reduced by the tax on the interest, which could be inflated if there is a kiddie tax  [ See below and  Taxable Equivalent Yield | What is The Value of the Structured Settlement Tax Benefit?]

Kiddie Tax Impact

The interest on a minor's personal injury or wrongful death settlement could be taxed at a high rates if invested in CDs, or other taxable investments. The Kiddie Tax is applied to the amount of the child's unearned income that exceeds $2,100. The Kiddie Tax rate is parent's or parents' marginal tax rate (the highest rate applied to the last dollar earned) which could be as high as 37%, for the 2018 tax year.  [ see IRS Topic 553  Tax on a Child's Investment and Other Unearned Income (Kiddie Tax)]

Notwithstanding the above, there is substantial risk of wasteful dissipation in making a large sum of cash available at age 18. A teenager or young adult could benefit from wealth orientation by speaking to a Certified Financial Transitionist.

Read more about Structured Settlements for Minors

 

Index-Linked Structured Settlements for Minors Catch The Eye of New York Judges

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

New York judges are approving index-linked structured settlements for minors in an Infant Compromise, as part of a proposed settlement planning allocation to complement fixed rate structured settlements in the current interest rate environment.  What's the attraction? Priced at approximately the rate of a structured settlement with a 2.3% COLA, index-linked structured settlement payment riders on structured settlement annuities, issued by Pacific Life and Annuity Company in New York* and Pacific Life Insurance Company elsewhere, are ideally suited for a plaintiffs with a long time horizon.

Indexed Linked Annuity Payment Adjustment riders are generally not a cost effective solution for short term structured settlements

The initial adjustment cap since the product was introduced has been 5%.  That's 5% increase in payments on completion of the first year of payments , but the cost of a 2.3% COLA.  If there was a down market the following year the minor's payments stay the same, averaging out to a 2.5% increase annually over the two years with the exemplar.   If you are concerned about low interest rates and have the time to spread out your payments then an allocation to the index-linked structured settlement is a good alternative, as some New York judges have discovered.

Download Index Linked Structured Annuity Pacific Life brochure

The ILAPA rider can be used for plaintiffs or structured attorney fees.

*Pacific Life & Annuity Company will issue annuity policies if ANY of the following occur inside the state of New York: solicitation, sales, negotiation of settlement, court/legal action, or claimant/payee residence.

Last updated August 28, 2023

Paying for College by Selling Your Structured Settlement May Be a Bad Idea

by John Darer® CLU ChFC MSSC RSP CLTC

Freshman start heading up to college soon and it's squeaky bum time for parents and students as they try to squeeze the maximum out of their budgets to be able to balance the best and most affordable education choices

Paying for college options

Great new article by Brandon Ballenger called 5 Ways to Reduce the Cost of College .  The title is self explanatory.

Many structured settlement buyers solicit people receiving structured settlement payments with the idea of selling structured settlement to pay for college. 

Blindly following advice from unlicensed professionals could put your child's educational aspirations on the schneid, because of a potentially negative effect on EFCs.

Read my April 13, 2014 post Selling Structured Settlements to Pay for College Has Negative Effects on EFCs, for additional information.

Structured Settlements and Financial Aid For College/University  is another helpful post which answers the question  "Can my child's insurance settlement have an affect on how much financial aid they receive for college?"

Care must be taken in the settlement planning process to consider how various settlement options impact the ability to pay for college and to address these issues before settlement documents are signed.

Certain surrogate judges in New York City (and those in other states) who insist on having all the settlement monies paid at age 18 need to be more aware of how such decisions could have a negative impact on their wards.

 

Image © Iqoncept | Dreamstime.com

 

Safeguards for Settlement Recipients | Dealing With Financial Immaturity and Settlement Money

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

Should large cash settlement payments be given to young adults? 

While petitions for infant compromise that include structured settlements, are generally approved in New York Supreme Court, there is resistance in some quarters, notably the Surrogates Court for Kings County (Brooklyn NY), where the structured settlement has not been a condition of settlement.This blog post is a shout out to parents, judges, lawyers, lawmakers and a certain Surrogate in New York City.  

Should structured settlements for minors be required to make all payouts by age 18?

Consider these real life stories...

 I. An impetuous Connecticut college student grew impatient while in line to pay Spring 2013 tuition at the University of Connecticut ("UConn" ) bursar's office and took the tuition money (half of which was contributed by Dad) , drove two hours to Foxwoods Casino and blew it all. Needless to day his father was NOT "Gaga" at his "Poker Face". 

II. Last week's Ask Amy column provides an illustration of financial immaturity in a young adult. The nationally syndicated story is about a reader's 22-year-old stepson who:

1. has been attending classes at a community college for four years and has yet to earn a degree!
2.  spent some of his financial aid money last year to buy his girlfriend an engagement ring. (His fiancee’s mother has now let him move into her home.)
3. needed $500 worth of repairs for his car, and instead of fixing it he went out and bought a $3,000 car with financial aid money. That car broke down in a week.
4. took out a student loan for $8,000 because he needed money to pay off his credit cards.
5. borrowed $600 from his grandmother for school supplies. Granny then called her husband saying she needed her $600 back, so her husband paid her back, but did not require his son to repay the father and stepmom!

The reader is perplexed because her husband states they should do nothing because his son is grown and can make his own decisions. Her hubby says he has talked with his son and he won’t listen, so he has to suffer the consequences of his decisions and actions.

III. An 18 year old preppy kid structures the bulk of his recovery from a wrongful death lawsuit arising out his father's death, holding out 10% for college tuition. Sometime later he sells some of the remaining structured settlement, intending to use the proceeds to replaced the lost college money (and go to college) and blows that too.

A structured settlement is an important component of a settlement plan for a minor or a young adult. Engaging a settlement planner as early as possible will help assure that a proper fact finding is performed without time pressure, a balanced allocation between cash and structure is considered and perhaps most importantly important financial education is dispensed.

Read more

Structured Settlements for Minors | Here's What You Need to Know (4structures.com)

Tip for Parents of Rampant Spenders

Parents who exercise joint control over bank accounts for teenagers must be careful to keep them in good standing. Overdrafts, bounced checks and other similar issues can seriously impact the credit scores of joint account-holders and quickly turn a supposedly educational venture into a credit nightmare.

Cited from: http://www.gobankingrates.com/banking/choose-best-bank-accounts-for-teenagers/#ixzz2GtKt1b6I

 

 

 

 

Read more here: http://www.idahostatesman.com/2013/01/01/2397656/stepson-squanders-financial-aid.html#storylink=cpy

Tax Benefits for Parents of Children With Disabilities

 by John Darer CLU ChFC CSSC

Parents of children with disabilities may be able to take advantage of certain tax breaks.  Are you aware of them?

As we are right in the middle of tax season it's important to take stock of what you have and what you can do to improve your bottom line.

Michael A. O' Connor of the Chicago, IL based law firm Mauk & O'Connor has written a helpful guide "Year 2006 Tax Benefits for Parents of Children with Learning Disabilities". O'Connor states "It's likely that 15-30 percent of families with a disabled child have one or more unclaimed tax benefits". WOW!

Do yourself a favor and read O'Connor's article. Discuss it with your CPA.  Don't lose out. Information is at hand to help you!

Information about Structured Settlement For Children