Structured Settlements Authority

Rethinking Structured Settlements

A Structured Settlement May Not Be the Right Answer

Structured Settlement - Overview

In order to understand structured settlement arrangements, it is useful to first learn about the events that lead up to the creation of the Structured Settlement Protection Act. The following is an excerpt from a hearing in March 1999 before the House Ways and Means Subcommittee on Oversight on the topic of Tax Treatment of Structured Settlement Arrangements:

This document was prepared by the Joint Committee on Taxation and describes present law (as of March 1999), background and issues relating to structured settlement arrangements, and describes recent proposals to alter the tax treatment of such arrangements.

Present law (as of March 1999) and background

A structured settlement arrangement generally provides for periodic payments as damages in cases involving personal physical injuries or physical sickness, or for amounts received under workmen's compensation acts for personal injuries or sickness. An exclusion from gross income is provided to the assignee of a liability in such a case for amounts received for agreeing to the assignment, provided requirements are met relating to the payments. Such payments generally are excludable from income by the recipient, whether received as a lump sum or as periodic payments.

Discussion of issues

The economic benefit in the structured settlement arrangement, as compared to a lump-sum settlement, arises because the Federal government forgoes taxation of the earnings component of each year's annual payment. Economists usually argue that such subsidies distort individual choice and lead to inefficient outcomes. Nevertheless, it can be argued that the choice of the lump sum settlement may create an externality, that is, a cost to taxpayers at large, not borne by the individual who chooses the lump sum settlement. Despite the implicit tax subsidy, the available evidence indicates that the majority of personal injury awards are paid as lump sum payments, not through structured settlement arrangements.

An individual's decision to sell his or her rights at a later date involves the same comparison the individual makes in initially agreeing to a structured settlement arrangement in lieu of a lump sum payment. The individual must weigh the value of the purchase price offered compared to the expected present discounted value of the income stream being sold. Issues arising from the transfer of structured settlement payment streams involve whether such sales are consistent with the purpose of the tax provisions, whether consumer protection or consumer freedom of economic choice is a more important policy, and whether the transfers should be stopped so as to eliminate present-law uncertainty as to their tax results.

Description of proposals

President's fiscal 2000 budget proposal

The President's proposal would impose an excise tax on any person acquiring a payment stream under a structured settlement arrangement. The amount of the excise tax would be 40 percent of the difference between (1) the amount paid by the acquirer to the injured person and (2) the undiscounted value of the acquired income stream. The excise tax would not be imposed if the acquisition were pursuant to a court order finding that the extraordinary and unanticipated needs of the original recipient of the payment stream render the acquisition desirable.

H.R. 263, "The Structured Settlement Protection Act"

H.R. 263, "The Structured Settlement Protection Act" (106th Cong., 1st Sess.) was introduced by Mr. Shaw for himself, Mr. Stark, and others. In general, H.R. 263 would impose a tax on certain acquisitions of structured settlement payment streams, equal to 50 percent of the amount equal to the excess of (1) the aggregate undiscounted amount of structured settlement payments being acquired, over (2) the total amount actually paid by the acquirer to the seller. H.R. 263 would provide an exception if the transfer is undertaken pursuant to the order of the relevant court or administrative authority finding that the extraordinary, unanticipated, and imminent needs of the structured settlement recipient or spouse or dependents render such a transfer appropriate.
Source: Joint Committee on Taxation, Tax Treatment of Structured Settlement Arrangements, (JCX-15-99), March 16, 1999

MetLife Reports Strong Structured Settlment Sales

In a press release issued today, MetLife reported strong results including particularly favorable sales in their structured settlement business. The following excerpts include their overall results and their comments on the Institutional Business Segment, which includes their structured settlement business.

"NEW YORK, July 28, 2005 - MetLife, Inc. (NYSE: MET) today reported second quarter 2005 net income of $2.2 billion, or $3.02 per diluted common share, compared with $954 million, or $1.26 per diluted common share, for the second quarter of 2004."

"Institutional Business Earnings up 13%
Institutional Business operating earnings for the second quarter of 2005 were $358 million, compared with $317 million in the prior year period. The improvement in earnings was primarily due to retirement & savings, which experienced strong interest spreads, and the non-medical & health business, which had favorable underwriting results. This was partially offset by a higher than normal level of large group life claims. Operating earnings in the prior year period benefited from a $31 million reduction, net of income taxes, to a previously established premium tax liability in group life."

"During the quarter, group life premiums, fees and other revenues grew 8% over the prior year period primarily due to growth from sales, strong retention and favorable renewal activity on large participating business. Retirement & savings net investment income grew 22% compared to the prior year period largely due to higher corporate joint venture income and an increase in the asset base driven by favorable sales, particularly in guaranteed interest contracts and the structured settlement business. Non-medical health premiums, fees and other revenues increased 15% over the prior year period due to continued growth across all product lines, particularly in the disability, long-term care and dental businesses."
Source: MetLife (Press Release)

Personal Injuries and Structured Settlement Payments

Those who have been seriously injured due to some else's negligence know that the realities can be a nightmare. Not only can an injury subject you to the pain and suffering of the accident, but your disability can also force you to quit your job. What follows can even lead to depression. You may face long term rehabilitation which can consume all of your time and effort as well as family finances. At the beginning you may not see a way that you will be able to cope with all of these new burdens.

Fortunately, we have laws that allow victims to seek damages for personal injuries. Historically, damages have come in the form of large lump sum payments, which the victim had to manage carefully in order to provide for a lifetime of medical expenses, and income needs. In some cases the award of a large financial settlement resulted in yet another tragedy as victims who were unaccustomed to managing large sums of money, have lose all or part of it thorough unwise investments or bad decisions.

Structured settlements laws were created to help reduce the difficulties victims face in these types of situations and to help provide them and their families with long-term financial security. Structured settlement payment agreements are different in that they focus more on the victims needs and may provide payments for a certain period of time or throughout the injured persons lifetime.

Formally recognized by the U.S. Congress in 1982, structured settlement are voluntary compensation agreements between injury victims and a defendant(s). Using this approach, the victim can receive a series of periodic payments instead of a lump sum. Most structured settlement agreements are entered into privately (e.g., a pre-trial settlement) while others, usually involving minors or persons deemed mentally unfit, may be created by a court order. These payments come from an annuity held by a financial institution, such as a life insurance company.

Structured settlement, payments may be scheduled for any period of time, even as long as the claimant's lifetime. Payments can be in fixed amounts or they can vary. Structured settlement payments may include future lump sums to pay for such things as college educations, operations or to update medical equipment.

Perhaps best of all, the structured insurance settlements or annuity that provides for these payments is allowed to grow tax free. Over a period of years, this can bring tremendous financial benefit to the victim, particularly when compared with a single lump sum payout, the interest from which is often taxable.

Settlement Funding: Get The Facts On Lawsuit Loans.

(PRLEAP.COM) Lawsuit financing (loans) help clients who are having financial difficulties. Lawsuit funders do not require credit checks, monthly payments, notes, or any other security. Settlement-Funding.atspace.com offers free advice and information on funding your lawsuit.

Frequently, claimants have missed work or lost their job and can no longer meet their rent or automobile payments. In the past, these claimants have needed to accept lesser settlement amounts due to pressing financial difficulties. Now, clients can sustain their personal lives and give the attorney the necessary time to achieve the full value of the case. Learn more http://settlement-funding.atspace.com

If the client has to leave their job due to injury or discrimination, keeping up with their household payments can be a huge strain. Lawsuit loans can allow the client to take care of medical expenses, household bills, mortgage payments, auto payments, etc. The client can get lawsuit loans from several banks and private institutions. The amount of loan the client can get will be a percentage of the total amount of their lawsuit. The lenders will look at their legal case and determine how much to loan them. Lawsuit loans have the benefit that the client only has to pay back if they win the case. Therefore there are no monthly payments. There are no credit checks before loan acquirement; therefore the client does not have to worry if they have poor credit.

A structured settlement is a deferred payment method for compensating injury victims, and is a voluntary agreement between the injury victim ( plaintiff ) and the defendant. The plaintiff will receive the monetary payout over the course of a number of years through this deferred payment agreement. Under a structured settlement, an injury victim does not receive compensation for their injuries in one lump sum, but rather, they will receive a stream of tax free payments designed to meet future expenses and living needs. This type of compensation method is becoming more popular in a wide variety of legal cases.

The benefits of a structured settlement over a lump-sum payment include the security of a guaranteed long-term income with deferred payments that are exempt from income taxes. The federal government encourages the use of structured settlements in personal injury cases. Structured settlements also attract support from plaintiff attorneys, state attorneys general, legislators, consumer and disability advocates.
Source: PR Leap (Press Release)

Page:  1  |  2  |  3  | Next Page »