When do Structured Settlements make Sense?

Structured Settlements can apply to various situations including:

• Personal, physical Injury or physical sickness (auto accidents, slip and fall claims, bodily injury, physical injury, medical malpractice etc.)
• Workers Compensation (physical injuries received in the course and scope of employment)
• Environmental claims (such as clean-up of toxic waste and pollution)

What types of structured settlement annuity types are available?

RBNA offers a variety of fixed annuity products (both deferred and immediate) to provide those injured parties with income to pay for medical expenses or replace lost wages for a specified period or for life. You can tailor the structure to meet your needs. Generally, people choose a life annuity with a guarantee period.
Life annuities are for people who want to transfer the risk of living a long time to an insurance company because the most difficult part of financial planning is not knowing how long you will live. For example if a 65-year-old woman with $500,000 spent $100,000 per year, her money would be gone in about 5 years. If she spent $50,000 per year the money would be gone in about 13 years (with the interest).

Do I earn interest on these payments?

The interest is built in to your benefit payments.  It is not itemized separately but is already added into the benefit you are receiving.  Remember, your are receiving these benefits tax-free. In contrast, interest earned outside of your structured settlement is normally taxable.

Are structured settlement annuities widely available through most financial planners and life insurance agents?
No, because of the specialized nature of structured settlements and their unique design and focus, only a licensed and appointed structured settlement specialist like RBNA can handle this type of transaction.

What are the Federal tax rules regarding Structured Settlements?

Section 104(a)(2) establishes that compensation received on account of personal injury or sickness is exempt from gross income whether received in a lump sum or in periodic payments. Section 104(a)(1), as of 8/6/97, adds Workers' Compensation to this category of tax-favored compensation. The reason for this exemption is that the claimants are merely being compensated monetarily for what they have lost physically or otherwise and the payments are not a gain for the claimant. If the claimant invests these payments, the interest earned will be taxed. A structure, however, provides more money over time, and all payments are received tax free.

According to Section 130 of the Internal Revenue Code, certain settlement liabilities qualify for favorable tax treatment and can be assigned to a third party using a qualified assignment. Section 130 specifically outlines the requirements necessary to establish a qualified assignment:

• The assignee assumes the liability from a party to the suit or agreement
• The payments are fixed and determinable;
• The payments cannot be accelerated, deferred, increased or decreased, or otherwise changed after the agreement is reached
• The assignee's obligation is no greater than that of the assignor
• The periodic payments are excludable from the recipient's gross income under Section 104(a)(2)*, and, for post 8/6/97 workers compensation cases, Section 104(a)(1)*
• The injury must be a physical sickness or injury
• A qualified funding asset (an annuity or U.S. Government obligation) must be purchased

Can a plaintiff purchase a structured settlement annuity himself or herself and still qualify for a tax-free benefit on the earnings?

No. If the settlement dollars are invested by the claimant, then it’s not a structured settlement. The interest earned will be subject to tax and the rates won’t be as good. Annuity rates have to do with life expectancy, competition, and premium taxes. Many insurance companies offer both regular annuities and structured annuities. They may charge 5.9% more to the same healthy person for a regular annuity than they would if it were a structured annuity. In short, they’ll pay more for the annuity and pay taxes.

How might a potential recipient of a structured settlement protect himself or herself from the effects of inflation?

You can have your payments increase each year you receive payments. One method is to build periodic stepped increases into the structured settlement payment schedule. This can be done for ongoing monthly payments or special lump sum future payments to help offset any inflationary effects. For example, you may purchase an annuity with an annual 3% increase.

Can I restructure my payments into a lump sum?

No. The federal law that assures the payments you receive are on a tax-free basis also prohibits converting your payments into a lump sum. Besides, to receive the tax break, the future stream of payments must be "fixed and determined" at the time of settlement. The payment stream can't be changed after settlement. So you lose some flexibility in that the payment dates and amounts cannot be changed.

What should I know before I agree to sell my structured settlement payments or use them as collateral for a loan?

If you are approached about selling your structured settlement payments, you should consult a trusted attorney immediately. You may also want to consider contacting the office of your state’s attorney general.

In recent years the federal government and more than 35 states have enacted consumer protection statutes that establish strict conditions for transferring structured settlements. Under the federal law, you will need court oversight and approval to sell your payments from a structured settlement to a third-party company.
 
Also, advocate for consumers and the disabled such as Consumer Federation of America, National Spinal Cord Injury Association, and the National Organization on Disability have publicly called attention to the practices of firms engaging in the purchase of structured settlement payments.
Normally, you may not use your benefits as collateral for a loan. The reason is that the federal law designed to provide these benefits to you on a tax-free basis also prohibits you from assigning or encumbering them.  

How do I change my beneficiary?

You may request a change in beneficiary providing the terms of your settlement or the payment provider allow it.  Normally the request should be made in writing and, in some situations, the original beneficiary or contingent payee may need to sign off on a change before it’s made.

What happens if I die before the guarantee period is over?

Your payments will continue to be made to your estate or your beneficiary (if you named one) each month until the 20 years are over.

Can I add my spouse’s name (or someone else’s name) to my benefit check?

No one except the individuals specified in the Settlement Agreement can be made the payees on your checks. Exceptions may be made as the result of a court order.

What if I misplace or lose the paperwork on my settlement?

If you have misplaced your paperwork you can obtain a copy from a variety of sources including the company that is responsible for administering your payments, your attorney, the company that settled your case, or the broker that assisted you with the structured settlement during the settlement.