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

A Punchline Review of Some Contorted Statements About Structured Settlement Factoring

by Structured Settlement Watchdog

Selling your structured settlement is always a losing money proposition. Each time you sell a portion of a payment stream you are in effect giving yourself a demotion and slicing your pay.

In this blog John Darer reviews some really contorted statements about structured settlement factoring in a piece authored by Mia Taylor and edited by Hannah Smith, for Bankrate.com and Yahoo Finance, and delivers his riposte below.

1."When contacting a buyer like J.G. Wentworth, a company representative will review your settlement fund, the amount of your monthly payments and current financial needs and offer two or three different buyout options".

Punchline:  J.G. Wentworth is now factoring a settlement fund? Given that a fund is defined as a sum of money saved or made available for a particular purpose  (Source: Oxford English Dictionary). And the present value of a cash is, LOL?  Seriously who needs to factor a lump sum?

2."When reviewing the sale, a judge will typically consider your living expenses, life expectancy, and future financial needs. This process can take anywhere from 45 to 60 days".

Punchline: It takes 45 to 60 days for the judge to review a structured settlement transfer?

3.“If the cash settlement company moves forward, they will offer the payee an upfront sum to surrender the payment stream along with a discount rate,” says Sexton. 'The discount rate ranges between six percent and 29 percent.”You can negotiate the specific rate, but they are not take-it-or-leave-it offers, Sexon (sic) adds".

Punchline: Is that an "Anglo-Sexon"?  :-)   Aha! a discount rate.   See #5 and #6

Not so funny...

Firm Tied to Woodbridge Ponzi Scheme Settles With SEC | ThinkAdvisor   

In re: STEVE SEXTON ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  Steven M. Sexton (sec.gov)

"Without admitting or denying the allegations of the complaint, Sexton and Sexton Advisory agreed to permanent injunctions against violating the charged provisions, the SEC said".  September 2020   

4. Structured cash settlements provide a steady and reliable stream of cash often over several years or even for the remainder of your life. What’s more, having the money distributed in increments, rather than cashing out, protects you from making big splurge purchases or using the money up quickly.

Punchline: Isn't a "structured cash settlement" an oxymoron?

5. “Some structured settlement companies charge 25 percent to 50 percent of the payment amount to be received,” said Michael Sullivan a personal financial consultant with Take Charge America. “That means getting the rest of $500,000 remaining in an annuity might result in a loss of $125,000 to $250,000.”

Punchline: Sullivan is Baloneyman in this Present Value Explanation included in Mia Taylor's article.

6.In discussing losing money as a disadvantage of cashing in your structured settlement, someone doesn't articulate present value very well. I used the calculator at Structuredsettlement.co to approximate the all in discount rate for $500,000 paid in monthly payments over 10 years that would raise $250,000 today and it was about 17.07%.   Download Structured Settlement Calculator solve for discount rate 250K PV of 500k future monthly payments over 10 years

7.Settlement buyers pay a discount rate for your monthly settlement payments. This means you won’t pocket as much money through a cash-out plan as you would have through receiving the payments over time as scheduled.

Punchline: Where you arrive at "pennies on the dollar" because "buyers pay (you) a discount rate" instead of discounting your cash flows

How does an award winning writer not cite someone who is a member of the board of the National Association of Settlement Purchasers, or someone with years of experience in structured settlement transfers, structured settlement investments and/or writing on the subject matter.

My interest as Structured Settlement Watchdog is to see that consumers seeking information about any aspect of structured settlmeents have the clearest path to accurate information about structured settlements.

Mia Taylor is highlighted as "an award winning Finance and Travel Journalist, Editor and Digital Content Producer who has 20 years of experience. Over the course of her career, Mia has received nine awards from the North American Travel Journalists Association, including several gold and silver awards for coverage of environmental sustainability and wildlife conservation issues–including cruelty to elephants in the travel industry. She was also part of a team of reporters from KPBS (the San Diego affiliate of National Public Radio) that won a Walter Cronkite Award for Excellence in Journalism for their investigation into the salaries of California County Supervisors.

That may be. But "What to Know About Cashing Out Your Structured Settlement" , where's the relevant experience or adequate research?

Mia Taylor includes in her work a range of contradicting discount rates that exposes the shortcomings in her fundamental knowledge of the subject. How can you be a finance writer and not possess a demonstrable knowledge of what present value and discount rates are? It's Finance 101. The internet is beset by articles like Taylor's that present poorly researched information that purport to be about structured settlements from non credible experts without subject matter bona fides.

What about the reviewer? Did the cited reviewer of Taylor's work, review spelling and sentence structure, or the facts?

Last updated August 10, 2024

 

Structured Settlement Article | "Expert Reviewed" Holey Moly in Forbes Advisor 2024

by Structured Settlement Watchdog

Forbes Advisor published inaccurate "Expert Reviewed" Holey Moly from a UCLA law professor, only months after publishing Jeremy Babener's excellent Forbes Advisor contribution about structured settlements. 

 A. Two Key Takeways Holey Moly

• A structured settlement means the plaintiff gets a series of payments over time rather than a single lump-sum payment.
• The defendant can purchase an annuity from an insurance company to pay the structured settlement

Commentary

• A structured settlement is a (1) negotiated, (2) customized stream of periodic payments, (3) paid as damages as part of the consideration (4) in exchange for a release of liability to resolve a claim, lawsuit, or dispute.
• A structured settlement is not an either/or binary.  
• A structured settlement may be funded with a structured settlement annuity [see IRC 130(d)]
• The majority of structured settlement annuities are purchased by qualified assignment companies. See Step 2 of Structured Settlement Flow Chart (Annuity) below.  Qualified assignmments have been the standard since President Ronald Reagan signed the bipartisan Periodic Payment Settlement Act into law in January 1983. For a deep dive on qualified assignments, see What is a Qualified Assignment? (4structures.com)
• Regardless of whether a structured settlement annuity is purchased, or if purchased by a self insured Defendant, a Defendant's or Respondent's liability insurer, or a qualified assignment company, where an annuity is purchased it is purchased from a life insurance company.  Under the laws of most states an annuity "is issued by a life insurance company in exchange for a premium" For example  California Code, Insurance Code - INS § 10509.913(a) | FindLaw, 

B. In discussion about Taxation and Pros of structured settlements Bieber and co. write:

1."the money from the settlement is tax-exempt, if the plaintiff invests the money from the settlement, interest earned could be taxed. However, the rules are different for plaintiffs who receive a structured settlement as an annuity. The principal and interest received are generally tax-exempt in this situation"  [see First Bullet Point for Commentary]

2."If a plaintiff receives compensation for physical personal injury, generally the settlelment is tax-exempt if the settlement is for:

• Physical injuries or sickness (except for medical expenses that were deducted on the plaintiff’s taxes)
• Mental anguish or emotional distress related to a physical injury or sickness (if not related, it is taxable)
• Discrimination that does not include lost wages
• Lost property value if the settlement is less than or equal to the basis of the property"  (see Third Bullet Point in Commentary below)

3."While the money from the settlement is tax-exempt, if the plaintiff invests the money from the settlement, interest earned could be taxed. However, the rules are different for plaintiffs who receive a structured settlement as an annuity. The principal and interest received are generally tax-exempt in this situation"

4. "Structured settlements provide a continuous stream of tax-free income. Payees will not need to worry about owing the IRS or their state any money from the settlement".

Commentary

• Whether a structured settlement is funded with an annuity has no independent bearing on the taxability of the settlement. Certain financially distressed hospitals in the New York City area have entered into agreements to pay over a short period of years with or without annuity funding.  
• The damages that settlement payments represent (as reflected in the settlement agreement executed by the parties, reflecting the intention of the parties) do have a bearing on taxation.
• Lost property value of the settlement is less than or equal to the basis of the property is listed as representative of tax exempt. I strongly suggest anyone exploring this type of structured settlement read this.  Construction Defect Structured Settlements (4structures.com)

Don't let your head explode. There's lots out there. Not all of it is accurate. I help you digest it

 

CA Structured Settlement Broker Ad Leads to Millions of Creators of Intricate Structures

by Structured Settlement Watchdog

California structured settlement broker has done a brilliant job of microsegmentation and expansion of the structured settlement market in what is already a record year for the structured settlement industry. Under the cover of a company marketing video, the subject structured settlement broker targets "surviving spouses and 'dependants' ". At first blush it appears to be just a funny typo, but no... apparently...

"Ants are among the most diverse and successful insects on Earth. Ants live in colonies that can number in the millions and cooperate to create intricate structures".  -Wikipedia

Holy Temecula! I think we're gonna need a bigger boat for the flood of business, mate. 

What the heck is an "ent" anyway?

 

 

 

 

Fact Check | Can Structured Settlement Annuities Be Sold?

by Structured Settlement Watchdog

 

A structured settlement payee selling the annuity funding their structured settlement payments to a factoring company or investor would be a neat party trick, since not a shred of it is possible.

Yet here's what appeared on a mistaken Orange County California structured settlement broker's website  (as of March 15, 2023)

"Can structured settlement annuities be sold?

 

Yes.  Factoring companies, which also buy lottery winnings, casino jackpots and other annuity-based payouts, use television and print advertising to reach individuals with structured settlements, offering to buy the settlement annuities at deeply discounted rates and paying the individuals a lump sum. (These lump sums are fully taxable, unlike annuity payments.)"

 

FACT CHECK

 

Structured settlement annuities cannot be sold.  

 

1. Individuals with structured settlements do not own the annuities that fund their structured settlements. They cannot sell what they do not own.
2. Structured settlement annuities are generally owned by qualified asssignment companies or non qualified assignment companies.
3. In the less common buy and hold cases, the buying and the holding is by the Defendant or its insurance company.

 

It would be a neat party trick

 

 

Says the California structured settlement broker, "Settlement buyouts require court approval. If the buyout is in the "best interest" of the injured party, the court approves the sale. California SB510, signed into law in 2009, gives the courts explicit guidelines to decide whether a buyout is appropriate. Some of these guidelines include a review of the injured party's current and future financial needs, whether the party has received independent legal and financial advice concerning the buyout and if the "discount rate" proposed by the factoring company is in keeping with current market rates". 

 

What California SB510 actually says

"SB 510, Corbett. Structured settlements: payment transfers. Existing law provides that no direct or indirect transfer of structured settlement payment rights is effective unless the transfer has been approved in advance in a final court order based on certain written court findings". Source: Legislative Counsel's Digest

What IRC §5891 actually says

I.R.C. §5891(a) Imposition Of Tax — 

There is hereby imposed on any person who acquires directly or indirectly structured settlement payment rights in a structured settlement factoring transaction a tax equal to 40 percent of the factoring discount as determined under subsection (c)(4) with respect to such factoring transaction.

 

I.R.C. § 5891(c)(3)(A) In General — 

The term “structured settlement factoring transaction” means 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.  Source: Internal Revenue Code of 1986, as amended

Bad information from members of the Primary Market begets more bad information

Consumers deserve the clearest pathway to accurate information about structured settlements.  Here are two recent blog posts reporting how investments in structured settlement payment rights have been mischaracterized and/or misrepresented as annuities in online advertising to investors:

Why Does NJ Insurance Agency Claim Secondary Market Annuities Involve POLICY transfers? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com) September 27, 2023

Coral Springs Co. Wholly Misleading Statement Re "Purchase of Structured Settlement Annuities" - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews (typepad.com) September 15, 2023

 

Let's try to do better.

 

Last updated September 29, 2023

 

 

 

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?

 

 

 

 

 

 

California IPA | $1,500 for "Holey" Structured Settlement Independent Professional Advice?

by Structured Settlement Watchdog

It's so disappointing when so-called experts providing independent professional advice, don't articulate their business properly.  How can any consumer feel confident in such independent professional advice when you consider the following, from an adviser in a state that permits a fee of up to $1,500 to be paid by the purchaser of structured settlement payment rights? 

structured settlement ipa

 

Let's examine a series of statements from a solicitation by a so-called structured settlement attorney based in California:

A. "If you are receiving a settlement over time and are in need of a lump-sum payment that is possible.  That is what is referred to as selling your annuity in the secondary market".

Structured Settlement Watchdog Commentary: This is a case of SNAFU.  No structured settlement annuitant owns the structured settlement annuity that funds the obligation to make payments to them.  The structured settlement annuitant or structured settlement payee cannot sell the annuity since they do not own the annuity. What they can sell, if the transaction complies with relevant state and federal law, are structured settlement payment rights.

B. "Most of the time you agreed to take a larger settlement over time, but what you may or may not know is that the original cash offer or a portion of it was used to purchased annuity that you are receiving in payments. These payment streams have a present-day discounted value in the secondary market. The IRS has come up with a number that it feels a dollar today is worth in say 10 years, and vice a versa. That number is then used to calculate what your payments are worth. This allows the purchaser to cover their costs in making the transfer happen. 

Structured Settlement Watchdog Commentary: Actually, that's not a proper articulation. It's unlikely that any structured settlement factoring company would do a deal for present value by simply the applying Applicable Federal Rate. The Applicable Federal Rate does NOT allow the purchaser to cover their costs and account for their profit margin!

According to the IRS Excise Tax on Factored Structured Settlement Payments Audit Technique Guide 3/2019 rev. p4

"The transferee – that is, the factoring company – is required to make a series of disclosures designed to highlight the value of transferred payments and to contrast that value with the net amount that a payee stands to receive in exchange for the transferred payments. In most states, the transferee is required to disclose the discounted present value of the transferred payments, as determined by using the “Applicable Federal Rate” most recently published by the Internal Revenue Service for purposes of valuing annuities.

About Form 8876, Excise Tax on Structured Settlement Factoring Transactions | Internal Revenue Service (irs.gov)

C. "The payment stream when setup was set up with a probable rate of 2 % return, and now your payment is being purchased at a minimum of 10 % return. Each transfer is unique so do quote exact numbers is impossible, but what you can expect to be to lose a large portion of the “face” value of your payments".

Structured Settlement Watchdog Commentary:  Tritely inarticulate balderdash.  Where do I start? 

1. "...probable 2% return, and now your payment is being purchased at a minimum 10% return". Aren't we speaking about discounted present value? Ergo, the latter reference is an effective discount rate?

2. Where does the random "probable 2% return" come from?  If an annuitant is in their late 20s and has a structured settlement established when they were  a child, that could have had a considerably higher Internal Rate of Return.  Consider that in 2002, the 10 year United States Treasury ranged from 5.04% in January to 4.03% in December. the 20 Year Treasury yield ranged from 5.43 in January 2002 to 5.63% in December 2002.  See How Structured Settlements Compare to Alternative Investments

D. "Structured settlement has to be underwritten & approved by a court. The underwriter is responsible for making sure that the payments can be sold and transferred without liens or liabilities. The court is responsible to ensure the seller has the right to sell the payments, and that it is in the best interest of the person receiving the payments to sell".

Structured Settlement Watchdog Commentary:  

1. No structured settlement is underwritten by a court.

2. No structured settlements have to be underwritten by a court

3. Courts are not underwriters

4. Some structured settlements have to be approved by a court, such as where the settlement is on behalf of a minor, an incompetent, or the matter is subject to probate.

5. A structured settlement factoring transaction (i.e. IRC 5891(c)(A)" transfer of structured settlement payment rights") must be approved by a Court and all requirements to comply with State Structured Settlement Protection Acts, to avoid a 40% Excise tax imposed under Federal law (see Iimposition of Excuse Tax IRC 5891(a)).

How about having some pride in the profession?

What is Independent Professional Advice in connection with Structured Settlement Transfers?

 

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  

California Structured Settlement Factoring Scam to Watch Out For

by Structured Settlement Watchdog

A California structured settlement factoring scam targets California residents with structured settlements using a mailed solicitation titled "Structured Payment Analysis for California State Settlement Recipients".

The scammers send the solicitation to your home mailbox claiming to have conducted an annual review of your structured payments and "their records indicate" that "your settlement payments may be terminating or may already have come to an end". They then make an alarming claim that "in some cases your payments may have dropped significantly from the original amounts you were supposed to receive, and your account requires immediate attention". Then in block capitals URGENT, please call them to discuss the necessary actions required on your account. 

Don't fall for it!                                                                                                                                                                                                     Telltale signs of "Phonus Balonus"                                                         

• No return address on the letter
• One too many "mays". If they already concluded an annual review, they would have no use for the word "may". They would know.
•  The phone number was answered by someone who purported to work at "Lincoln" and knew nothing about the letter.                                                                                   

 

 

 

Can a Parent Sell A Minor Child's Structured Settlement to Buy an ATV for the Minor?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

With birthdays and holidays, it's not uncommon for parents to want to do something special for their children.  But does that include selling a minor's structured settlement to buy an ATV recreational vehicle?   

So what happens if a 10 year old child appeals to the parent for something like an ATV and the parent would get it for them if they could afford it right now, can the parent and guardian reach out to a structured settlement buyer and sell the minor's structured settlement payments earmarked for college, for cash now, to buy an ATV? If they could, would the deal make financial sense?

Would a judge approve the sale of minor's structured settlement to buy an ATV for a minor?

Structured settlements are common in settlements involving minors and are preferable to blocked accounts or the court's registry.

Blocked accounts and the court's registry will earn little-to-no interest from the date of the settlement until the child reaches the age of majority.  Upon reaching the age of majority, the child has unrestricted access to the entire amount of the settlement, at a time when he or she might not be financially responsible enough to make smart decisions about a substantial amount of money. 

So what happens if a 9 1/2 year old child appeals to the parent for something like an ATV and the parent would get it for them if they could afford it right now, can the parent and guardian reach out to a structured settlement buyer and sell the minor's structured settlement payments earmarked for college, for cash now, to buy an ATV? If they could, would the deal make financial sense?

Settlement Agreements and Qualified Assignments Contain a Prohibition, Unless...

If you review any settlement agreement and release or qualified assignment agreement you will see a paragraph that looks something like this:

"Acceleration, Transfer of Payment Rights. None of the Periodic Payments and no rights to or interest in any of the Periodic Payments (all of the foregoing being hereinafter collectively referred to as “Payment Rights”) can be

i.  Accelerated, deferred, increased or decreased by any recipient of any of the Periodic Payments; or

ii. Sold, assigned, pledged, hypothecated or otherwise transferred or encumbered, either directly or indirectly, unless such sale, assignment, pledge, hypothecation or other transfer or encumbrance (any such transaction being hereinafter referred to as a “Transfer”) has been approved in advance in a “Qualified Order” as defined in Section 5891(b)(2) of the Code (a “Qualified Order”) and otherwise complies with applicable state law, including without limitation any applicable state structured settlement protection statute."

Why the Restrictions?

• Tax Reasons Setting aside the part of the paragraph that deals with Section 5891, the the foundation of this language is the tax law that supports the tax exemption afforded structured settlement payees who are receiving periodic payments as damages. 
• Protection   If someone wants to sell their structured settlement payments, the transaction must be approved by a state court judge, in compliance with the settlement protection act in the state where the payee resides.  It's not a perfect system but as the Barber case shows, one cannot always rely on structured settlement factoring companies (and sometimes parents) to be trustworthy.

Does It Make Sense?

1. Unlikely to be Approved by Judge It is highly unlikely that a judge would approve the sale of minor's structured settlement payment rights for pennies on the dollar to make a discretionary purchase such as an ATV for a minor.

Special needs may be considered, but only if there are no other sources available, such as insurance. Settlements involving minors must be approved by a court and can only be changed by court order, for good cause shown, and of course the petitioning party would have to convince the judge that any change is a necessity for the minor.

2. Selling a structured settlement, or part of it, to pay for an ATV for a minor makes no financial sense

Many states have laws about what types of ATV’s are approved for what ages.  For instance, in Kentucky, any operator under the age of 12 must have a helmet, parent supervision and cannot operate an ATV that has an engine size of 70 cubic centimeters (cc).  Harry Sheen addresses the subject in a 2019 article posted on Axle Addict says "When it comes to shopping for a brand new 70cc ATV, there are a lot of different models to consider from a range of different brands. ATVs this size are generally intended for kids around the ages of 6 to 10, but I would definitely recommend that you:

• check your four-wheeler manufacturer's recommended age guide)
• check for any local and state age limits for ATV riding.

Sheen says " considering your child's age and experience on a four-wheeler, you might want to get a 50cc four wheeler or even smaller for your kid".  

An ATV for child aged 10 or under, would set you back perhaps $2,500 with a helmet and all the gear.  If you have a structure with payments earmarked for college, you wouldn't want to touch that at all. Say your child has a lump sum at age 21 or 22,  the ATV would have a net cost of at least double that to net out the $2,500 after the costs and profits of the factoring company are taken into account.

Whatever you do, do not call structured settlement buyers for advice about your minor's structured settlement

If you engage any structured settlement buyers by email, phone, text or other form of communication,  you may be speaking with someone who is both unlicensed and unqualified to give advice. Furthermore, your child's information will go into their database, leaving your child open to abuse later. Stay safe. 

According to the 2018 Annual Report of ATV-Related Deaths and Injuries, published by the U.S. Consumer Product Safety Commission in February 2020, children under 12 made up 48% of child fatalities and 52 % of the injuries involving ATVs in 2018 and 44% of the fatalities over the 37 year period from January 1, 1982 to December 31, 2018.

 

 

 

David Klasing | "Any Disadvantages to a Structured Settlement Agreement?"

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Irvine California tax attorney David Klasing made an attempt to answer the above question in 2014.  There are a number of errors in the still live posting on the Orange County law/accounting firm's website that still comes up in search results. I offer some commentary on that post in a effort to correct those errors.

1. Klasing places much emphasis is placed on the fact that the plaintiff cannot own the (structured) annuity. While true, the reality is that no structured settlement annuity issuer would even issue a structured settlement annuity with an individual annuitant listed as annuity owner. Even if paperwork were submitted with the annuitant as owner, it would be rejected, and no policy would be issued. This is nothing new. That's the way it has been for almost 40 years. 
2. Klasing alleges, in part incorrectly, that the plaintiff typically cannot alter the amount of annuity payments (he, she, or it-in the case of a trust, receives), when there has been a process in place in California to do just that, since October 11, 2009.  Sale or transfer of structured settlement payment rights in exchange for a lump sum of cash is permitted provided the structured settlement transfer complies with state law.  Provided the law is complied with the annuitant effectively reduces the payments he, she or it receives.
3. Klasing errs in stating the plaintiff typically has no rights to the annuity greater than that of an unsecured general creditor when, since 1988 (26 years prior to Klasing's still published posting), the footnote to IRC 130(c) reads "The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor".  
   

Structured settlements provide a customized stable source of income that is income tax free for damages on account of personal physical injury, physical sickness, wrongful death [subject to IRC 104(a)(2)], workers compensation [subject to IRC 104(a)(1)] and wrongful conviction/imprisonment [ subject to IRC 139F]. I like to use the metaphor of a "job you can never be fired from". The stable income can be helpful to rebuild financial lives, replace income from a former job, or the income contribution of a deceased spouse. It can help a college graduate get started in life without having to share a place with 3 people or work 3 jobs by necessity and have the stability to afford to take a lower paying internship or training program with good potential.

 

Last updated November 5, 2022