structured settlements are tax-free or tax-deferred periodic payment arrangements, which have historically funded with guaranteed fixed annuities and provide safety and security to settlement recipients. Structured settlements were first used in the United States in the 1970s. Since that time, they have been constantly strengthened and codified through IRS Revenue Ruling 79-220 in 1979, the Periodic Payment Settlement Act of 1982, IRS Private Ruling 8333035 in 1983, the Tax Reform Act of 1986, and the Small Business Job Protection Act of 1996. Additionally, the National Structured Settlements Trade Association (NSSTA) helped create the Congressional Structured Settlement Caucus, where Republicans and Democrats work together on a bipartisan basis to improve the understanding of structured settlements. Structured settlements are also strongly supported by the American Association for People with Disabilities (AAPD), the National Consumer League (NCL) and the Claims and Litigation Management Alliance (CLM), among many other groups and associations.
Structured settlements offer much-needed protection, security, and peace for mind over 30,000 settlement recipients annually.
Needless to say, structured settlements are very important They offer much-needed protection, security, and peace for mind over 30,000 settlement recipients annually. They offer guaranteed income for specific periods of time or person’s lifetime, provide college funds for children, and cover future medical costs for the severely injured. They also offer me to meet the daily needs of hundreds of thousands of Americans. Most importantly, they help prevent the future dissipation of valuable settlement proceeds and keep people from being added to government welfare programs.
Unfortunately, most Americans who go through the long, exhausting, and costly settlement process are never made aware of the many benefits structured settlements can provide. Plaintiff attorneys, defendant insurance companies, and self-insureds typically act as the “gatekeepers” to the structured settlement process. Generally, only minorors and catastrophically injured people have been presented with structured settlement options. Why is this the case? We know that the “gatekeepers” believe that many people will not be interested in the currently fixed fixed rate annuities, even considering the large tax advantages they bring.
What happens when a plaintiff is not able to get a structured settlement? They are denied the ability to receive significant tax advantages and, unfortunately, often spend or lose all of their settlement proceeds within a few years Important lessons were learned in 2001 when a trial attorney and guardian ad litem were forced to pay $ 4.1 million to settle a claim related to a physical injury case, where a structured settlement was discussed or offered to the plaintiff. Structured settlement consultants many solutions to easily and effectively educate the injured party, thereby protecting the plaintiffs, their legal counsel, and others in the settlement process.
Structured settlements are going to be an invigorating evolutionary process at present. As a result, the industry should grow from $ 5.5 billion per year to $ 10 billion or more in the next 3-5 years. To get there, we must look at the current economic environment.
Due to historically low U.S. Treasury yields, the rates of return on structured settlement annuities are also near historic lows. These low yields have been put on the return equity of the life insurance companies that offer structured settlement annuities, driving many insurance companies out of the marketplace. This will be a very negative development for the industry; to the opposite, it has allowed the rest of life insurance companies in the space to focus on the business. Some life companies like short-term money, while others like long-term money and price themselves. The result is fewer companies more effective realizing their profit objectives.
Fewer life insurance companies offering structured settlement annuities and historically low fixed rates have created an opening for alternative structured settlement funding vehicles. Industry innovators have responded by making unique solutions that allow claimants (and their contingency fee attorneys) to choose from a variety of funding assets. In addition to the fixed annuity, structured settlement recipients may also use US. Treasuries, fixed-indexed annuities, and now market-based structured settlements. Clients often use one or more of these solutions to best address their short-, medium-, and long-term income needs.
Similar to fixed annuities, fixed indexed annuities offer guaranteed principal protection with some market participation when the selected index positively performs. Clients can choose from several indexes, such as the S & P 500. If the index is given in a given year, clients never lose money. If an index outperforms, the client receives a share of the increase in the index, subject to caps that allow the life insurance company to notify any of the losses due to the downside protection. This gives the client the opportunity to increase their annual cash flow and potentially do better than a fixed annuity.
different from fixed and fixed indexed annuities, market-based structured settlements do not offer guarantees of principal protection, as the assets are invested directly in the market. These programs allow the assets to be managed by a fiduciary from many different financial institutions. The result is totally tax-free, and non-physical injury cases (employment, contract dispute, environmental, construction defect, and most other types of legal settlements) in physical injury-related cases, or tax deferral.
Such programs are currently being used in the contestant and celebrity endorsement transactions.
Due to the wide array of new structured settlement funding vehicles, it is now more important than ever for all settling plaintiffs to educate about their structured settlement options. The plaintiffs have a one-time pre-settlement opportunity. Once the client or their law firm has taken constructive receipt of the settlement dollars, they are completely lost in the valuable tax advantages.
1 Josephine Grillo, As Guardian and As Next Grade for Christine Grillo, A Minor v. Tom Pettiette, T.E. Swate, and Hardy Milutin & Johns, 96th District Court, Tarrant County, TX, Cause No. 96-145090-92
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