by Structured Settlement Watchdog
You may encounter the term "tax-free structured settlement annuity" on the Internet. Be mindful that there is no such thing. Don't worry annuitants, there is an 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.
- 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"
While some of these statements may seem plausible, the nature of damages that the payments represent is a critical factor, not the 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). 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 "What is a " Tax Free Structured Settlement Annuity?" on the Settlement News Network