by John Darer CLU ChFC MSSC CeFT RSP CLTC
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.
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 it's certainly possible that 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:
- 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.
- 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.
- 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.
- 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)
- 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 beneficiaries on structured settlements