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

Structured Settlements | How Structured Settlemnet Bond Ladder Simulation Works

by John Darer® CLU ChFC MSSC CeFT® RSP CLTC

With 5% plus structured settlement returns possible, attorneys and plaintiffs alike may wish to consider creating a bond ladder simulation with structured settlements.

No not THAT Bond!

How Bond Ladder Simulation Structured Settlement Works

• A structured settlement can be designed to simulate a bond held to its maturity, wherein the payee receives income for a fixed period certain, followed by the return of the cost of the structured settlement in a guaranteed lump sum at the end of the fixed period of time.
• The return of cost of structured settlement can then be reinvested if desired, but depending on the investment chosen, the interest earned on the reinvestment may be taxable.
• Multiple structured settlement bond simulations can be done to form a ladder of income and lump sums for reinvestment.

For example.

Cash Flow 1  Monthly income for 10 years followed by a lump sum return of cost

Cash Flow 2  Monthly income for 12 years followed by a lump sum return of cost

Cash Flow 3  Monthly income for 15 years followed by a lump sum return of cost

Cash Flow 4 Monthly income for 20 years followed by a lump sum return of cost

These can be combined in a single contract with one company or split funded with multiple structured annuity issuers.

Another attractive feature of structured settlements is that while a structured settlement offers safety, security and guarantees, protecting the claimant's settlement -- it also provides an excellent tax-free return in cases involving physical injury. 

This tax-free return stands up very well when compared to taxable and tax-exempt investments with a similar risk profile.    See Structured Settlements Vs Alternative investments.

Bonds are more liquid than bond simulation structure since most are traded on a regulated market. Structured settlement payments can be sold or transferred if a judge approves in your state of residence. The market is under regulated and the regulation of solicitation practices by salespeople at so called factoring companies, cash now companies, settlement purchasers or structured settlement buyers, is bereft of substance.

Last updated September 21, 2023

What Happens to An Annuity When You Die?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What Happens to an Annuity When You Die?

If the annuity is a retirement annuity, the policy is in accumulation phase  (payouts have not begun at the time of death) AND the owner has named beneficiaries, the value of the annuity on the date of death is paid to the primary beneficiary. An advantage of naming a beneficiary is that the funds are available much faster to the beneficiary than they would be having to go through probate. Some companies give options for extending the deferral of interest. Required minimum distributions may be necessary where the decedent was over 70 1/2 at the time of death.

If the annuity is a payout annuity, such as a deferred income annuity (DIA) single premium income annuity (SPIA) or structured settlement annuity (SSA), AND the annuitant has named a beneficiary, only periodic payments that are certain are paid to beneficiaries, when they are due.

If the annuity is structured settlement annuity (SSA) with a commutation rider that has been in place since the annuity was established, AND the annuitant has named a beneficiary, remaining certain payment are commuted to a lump sum using the formula stated in the contract and paid to the designated beneficiary.  In some cases the designated beneficiary may be a trust.

Why Not Naming a Beneficiary to Your Annuity, or Leaving It To Your Estate is a Bad Idea.

If there is no named beneficiary, payments are made to the Estate of the deceased annuitant payee. The value of the annuity on the date of death to must go through the probate estate and will be hit with any fee or charge that is based on the assets of the Estate.

Do you need to name an annuity beneficiary in your will?

No, you do not need to name an annuity beneficiary in your will because all it will do is delay the payment of proceeds while the Estate of the decedent is probated. Naming a beneficiary with the annuity issuer results in much faster and less costly distributions following the death of the annuitant payee.

When this post was first published, Elaine Silverstrini, a writer for the unreliable website Annuity (dot)org, lead generation company for CBC Settlement Funding, clearly did not have a handle on this. She wrote:

"After the death of an annuity owner, annuities can be left to a beneficiary selected by the owner. This means an annuity held by a parent, spouse or another loved can be willed to a person named as a beneficiary".

Ah...no. Not a good idea for the reasons stated above.

Name a beneficiary using the form supplied by the annuty issuer, submit and confirm

You can also name a primary beneficiary and a contingent beneficiary in case the primary beneficiary is not living at the time of your death.  With a payout annuity, such as a structured settlement, the beneficiary can name their own beneficiary once they begin receiving payments. Submit any changes on the form provided by the annuity issuer and don't forget to confirm receipt and that changes are properly recorded. Usually a letter goes out to confirm, but you should take practive steps yourself anyway.

Last updated August 5, 2023

 

New York Life Insurance Company 'Through Every Panic Since 1845" | NY LIfe Structured Settlements

by John Darer CLU ChFC MSSC CeFT RSP CLTC

In 1937, my respective grandparents were parents of young children during a period of economic volatility.  My forebearers and yours would likely have seen this New York Life Insurance Company advertisement that still holds true today,  171 years from 1845, when  New York Life was founded.  Safety security and guarantees are top of the list for why people do structured settlements.

Safety Security and Guarantees  Are A Key Reason Why People Do Structured Settlements

Rated Ages Boost Lifetime Structured Settlement Payments, Lower Cost of NY Structured Judgments

by John Darer® CLU ChFC MSSC RSP CLTC

A rated age will be issued if the structured settlement annuity issuer believes the plaintiff has an impaired life expectancy.  The rated age is simply the age used to price the structured settlement annuity, or New York structured judgement annuity, as opposed to the actual age

Rated Age Structured Settlements Can Boost Your Potential Lifetime Annuity Payout

• From the plaintiff's perspective,  rated age will serve to boost the yield per settlement dollar allocated to a structured settlement.
• From a defendant or insurer's perspective,  a rated age will serve to reduce the cost of settlement offers for paying life contingent future damages.

How Does a Rated Age Help Reduce the Cost of A New York Structured Judgment?

A rated age could reduce the cost of a structured judgment in New York for a Defendant.  Certain aspects of a structured judgment, pursuant to CPLR 50A or CPLR 50B are life contingent, future medical expenses and future pain & suffering.  A rated age would most likely impact future medicals, which stretch many years into the future,  Under New York law, future pain & suffering is compressed into 8 years for Article 50-A and 10 years for Article 50-B structured judgments,  so it would need an exceptionally high rated age to have any impact.

High rated age structured settlements may hold an advantage over other vehicles and even a modest amount allocated from a large settlement, can effectively be used as an  "investment backstop" to assure a certain level of future income, even if everything else is lost.

Moreover payments from structured settlements are income tax-free pursuant to Sections 104(a)1 or Section 104(a)(2) and 130(c) of the Internal Revenue Code. A structured settlement offers contractual certainty as opposed to hypothetical investment possibility. A structured settlement blended with a settlement trust,such as a Settlement Preservation Trust or Special Needs Trust (Supplemental Needs Trust in New York state),in tandem, may offer a plaintiff a measure of liquidity, contractual guarantees, upside potential along with downside protection.

New York CPLR 50-B Structured Judgments | Ramifications of Insurer Insolvency

by John Darer CLU ChFC MSSC CeFT RSP CLTC

What are the ramifications in a New York CPLR 50-A or 50-B judgment where the structured judgment annuity issuer and/or insurer becomes insolvent?

I received such a question in September 2008 from an attorney for a former plaintiff receiving a substantial CPLR Article 50-B judgment from an AIG insured and funded with a structured judgment annuity from American International Life Assurance Company of New York (now United States Life Insurance Company in the City of New York) when AIG entities were A++ AM Best and AAA Standard & Poors.

First, please note that the situation described is both unprecedented and untested. The financial crisis of 2008-2009 however placed it on the radar screen.

Now consider this:

CPLR 5041(d) states in pertinent part "The court, as part of its judgment, shall direct that the defendants AND their insurance carriers shall be required to offer and to guarantee the purchase and payment of such an annuity contract".

Under a CPLR 50-B judgment, the structured judgment annuity is owned by the defendant and/or its insurer. The defendant and/or insurer, as owners of the annuity contract, are general creditors of the annuity issuing life insurance company.

What if the structured judgment annuity issuer and the defendant''s insurer are subsidiaries of the same holding company, such as described above?

If the annuity issuer goes "belly up" the Defendant appears to be responsible to make payment under CPLR 5041(d).

Now consider this:

§  5044.  Failure  to  make payment. If at any time following entry of  judgment, a judgment debtor fails for any reason to make a payment in  a  timely  fashion  according  to  the  terms of this article, the judgment  creditor may petition the court which rendered the original judgment for an order requiring payment by the judgment  debtor  of  the  outstanding payments  in  a  lump  sum.  In  calculating  the amount of the lump sum judgment, the court shall total the remaining periodic payments due  and   owing  to  the  judgment creditor, as calculated pursuant to subdivision (e) of section five thousand forty-one of this article,  and  shall  not  convert these amounts to their present value. The court may also require the payment of interest on the outstanding judgment.

The implications of such a scenario are logarithmic! A defendant that is not aware of, and has not reserved for the contingent liabilty has significant potential exposure. The acceleration clause in CPLR 5044 could be lethal to a defendant if all the wrong stars are aligned. It is therefore wise for defense lawyers and insurers whose insureds take a large sustainable verdict and elect to pay a judgment in New York subject to CPLR 50-B, to discuss this possibility with their insureds in advance and document a complete understanding of the ramifications, however remote the occurrence may seem at the time,

A CPLR 50-B judgment has the potential to be a financially disasterous outcome for a plaintiff with serious medical impairments who wishes to leave an estate to his/her family. The typically large elements of damages (pain & suffering and medicals) are life contingent.  For such plaintiffs a CPLR 50-B structured judgment offers little to no protection for their heirs unless the plaintiff is medically qualified to be insured for life insurance which can offset the exposure.

Lawyers on both sides of New York cases clearly have an incentive to work towards a settlement that will protect their principals.

A settlement gives plaintiffs more flexibility,  a more tailored and diverse array of options and a greater ability to put a comprehensive plan in place for the litigation recovery.

Postscript

Note that this post was last updated on January 8, 2013.