Hello all Today we'll talk about
Information
For structured settlement
1. What Is A Structured Settlement?
Structured settlements are an innovative method of
compensating injury victims. Encouraged by the U.S. Congress since 1982, a
structured settlement is a voluntary agreement between the injury victim and
the defendant or insurer.
Under a structured settlement, an injury victim doesn't
receive compensation for his or her injuries in one lump sum. Rather, in
addition to a lump sum immediately upon settlement to cover current obligations
or fees, he or she will receive a stream of future tax-free payments tailored
to meet medical expenses and basic living needs.
A structured settlement may be agreed to privately (for
example, in a pre-trial settlement) or it may be required by a court order,
which often happens in judgments involving minors.
annuity structured settlement
2. Why Were
Structured Settlements Created?
Historically, damages paid because of an injury lawsuit came
in the form of a single lump sum. This kind of payment, especially in
catastrophic injury cases, often placed the injury victim (or family) in a
difficult financial position: With the victim focused on adapting to a new
lifestyle, there often was not the time or expertise to manage large sums of
money.
This kind of scenario sets up the probability of dissipation.
A person who dissipating funds intended to cover a lifetime of medical care
runs the risk of losing medical care and independence. They also risk winding
up on public assistance at a significant cost to the taxpayer.
In 1982, a bipartisan coalition of legislators in Congress
came together to pass legislation that amended the federal tax code. Their
action, The Periodic Payment Settlement Act of 1982 (Public Law 97-473),
formally recognized and encouraged the use of structured settlements in
physical injury cases.
3. I'm involved
in a personal injury lawsuit currently. Why should I consider Structured
Settlement?
The payments from a structured settlement can:
- be arranged to be invested on your behalf and
distributed tax-free
- Meet long-term rehabilitation or permanent care
facility expenses;
- Provide for the future costs of college funds,
retirement, down payment on a home, or mortgage payment; and
- Relieve the burden of managing the money to meet your
needs
- Provide long-term financial security at NO COST!
annuity structured settlement
4. Are
structured settlements limited to cases involving physical injury or physical
sickness?
No. Many non-physical injury cases can be structured
including: divorce, employment cases, property damage, punitive damages,
lottery prizes, business disputes, law firm break-ups, attorneys fees, and
more. The difference is that these recoveries are partially or fully taxable
(over time).
5. Are
structured settlement widely available through most financial planners and life
agents?
No, because of the specialized nature of structured
settlements and their unique design and focus, only a licensed and appointed
structured settlement specialist can handle this type of transaction.
6. Are
Structured Settlement Annuities guaranteed?
Yes, by contract. The annuity policies are guaranteed and
backed by the reserves established by the life insurance companies and required
by state insurance departments. A companies financial strength and solvency is
measured by the major independent rating agencies (Moodys, A.M. Best, S&P).
7. Can a
claimant purchase their own annuity after a cash settlement and still receive
payments tax-free?
No! A claimant may purchase an annuity policy with their
settlement dollars after the closing documents have been signed, but without
the income tax free advantages afforded by IRC Sections 104(a)(2). Generally
speaking, in order to take full advantage of Section 104 the defense must
cooperate in purchasing, guaranteeing and owning the annuity contract.
Claimants may not exert any "control" over the annuity contract in
order to be assured of tax-free payments. (Except in the case of a Qualified
Settlement Fund under Treasury Reg. 1.468B)
8. Is a
"personal" annuity taxed differently to the claimant than a
structured settlement annuity?
Yes. Structured settlement annuities pay benefits to the
claimant income tax free forever. Personal annuity payouts are subject to the
so-called "exclusion ratio" of IRC Section 72. The exclusion ratio is
calculated at the time the personal annuity is purchased from the life
insurance company. It is derived by dividing the "investment" (the
premium paid) in the contract by the total expected payout. The exclusion ratio
is then multiplied by the annual annuity payment. The result is the portion
excludable from taxation. The difference is the amount subject to annual
taxation. Owners of personal annuities receive IRS Form 1099s from the life
insurance company each year that state the ratio and supply the amount of
annual payment that must be included in the recipient's income tax return.
9. How much will
this tax break be worth to me if I take a Structure Settlement?
It's considerable. As a general rule of thumb you will save
between 25% and 35% in state and federal taxes on interest income that would
otherwise be subject to tax. The exact amount would depend on your tax-bracket.
Refer to the Taxable-Equivalent Yield Chart to
illustrate what taxable yield (guaranteed) you would need to match the tax-free
settlement annuity
10. What Kind
Of Flexibility Do I Have In Setting Up A Structured Settlement?
Structures are exceptionally flexible and can be designed
for virtually any set of needs. A relatively simple payment schedule can be set
up that provides for equal payments at set intervals - for example, every month
for 20 years.
Yet payments need not be in equal amounts. Someone who will
need a new handicap-equipped van every six or seven years might elect to
receive a larger payment every 72 months to help defray the cost. (This would
presumably be in addition to the regular payments.)
Structured settlement's inherent flexibility means that they
are well suited to compensate people for a wide variety of injuries.
11. Can some
other entity besides the defendant or their assignee purchase the tax-exempt
settlement annuity?
Yes, under certain circumstances. If conditions exist
pursuant to IRC Section 468B, a Qualified Settlement Fund could step in the
shoes of the defendant and as a "party to the suit or agreement"
arrange for the purchase of the settlement annuity and comply with the tax
codes, including Section 130.
12. What is a
qualified settlement fund (QSF) and how is it created?
The enactment of 26 U.S.C. § 468B created special rules for
designated settlement funds, which the Secretary of the Treasury, through
statutory and inherent authority, broadened in concept through the issuance of
Treasury Regulations § 1.468B-1, creating the QSF to "resolve or satisfy
one or more contested or uncontested claims that have resulted or may result
from an event (or related series of events) that has occurred and that has
given rise to at least one claim asserting liability...(ii) Arising out of a
tort...." [26 C.F.R. § 1.468B-1(c)(2).]
The authority of the court to create and oversee the QSF is
absolute: "A fund, account, or trust satisfies the requirements of this
paragraph (c) [defining a qualified settlement fund] if...it is established
pursuant to an order of, or is approved by, the United States, any state
(including the District of Columbia), territory, possession, or political
subdivision thereof, or any agency or instrumentality (including a court of
law) of any of the foregoing and is subject to the continuing jurisdiction of
that governmental authority." [26 C.F.R. § 1.468B-1(c)(1).]
13. What are
the components of a typical structured settlement?
There is a wide range of benefits, depending on the
circumstances of the case. However, options frequently considered include:
- Up-front cash
- Level payments made monthly or at other appropriate
intervals
- Payments with increases in level amounts or percentage
increases
- Payments guaranteed for life, or for a fixed period of
years or both
- Level payments supplemented by periodic payments of
lump sums
14. What is the
most common type of payment streams in Structured Settlements?
People generally choose a life annuity with a guarantee
period. For example, $1500 per month for life with a 20 year guarantee.
Payments will be paid a minimum of 20 years and then for the life of the person
thereafter.
15. What
happens if I die before the 20-year guarantee period is over?
Payments will continue each month until the 20 years have
ended. Payments will be made to your estate, or your beneficiary if you
designated one.
16. What is a
Rated Age and how does it affect the annuity?
Rated Age is the term used to describe an adjusted age given
by medical underwriters based on an analysis of health impairments - related to
the injury or pre-existing. This rated age is used to calculate the annuity
costs or benefits for that individual. Many injured claimants also have
significant health problems or habits, such as smoking, alcohol abuse, heart
disease, high blood pressure and/or diabetes. This rating process directly
affects the cost of the annuity (favorably) because the life insurance company
is of the opinion that they will make payments over a shorter life span,
therefore requiring less of a premium deposit to assume the lifetime payment
obligation. Conversely, assuming a fixed premium deposit allocated for the
annuity, increased annuity benefits will be paid to the individual over their
lifetime.
17. Why are
life annuities the most popular?
For the lifetime financial security they provide and because
people want to transfer the risk of living a long time to an insurance company.
One of the the most difficult aspects of financial planning is not knowing how
long you will live. With a life annuity, you cannot outlive your payment
stream.
18. Would
someone be better off with and investment adviser that might promise a higher
overall rate of return instead of the tax-free annuity?
It is very unlikely. If you gave the cash to the investment
adviser, he has to guarantee an after-tax return higher than the insurance
company because of the taxes and ongoing management fees that will need to be
paid and deducted from his/her program. A structured annuity has no annual fees
that reduce returns. Remember also, only life insurance companies can offer
life payments.
19. Why won't
the investment adviser believe that structured payments are tax-free?
Because structured settlements are transactions that are not
very familiar to them and are only are available for those with physical injury
lawsuits. Many people haven't heard of them, including most investment
advisers. If he insists it can't be true, refer him to section 104(a) and
130(c) of the IRS code.
20. How is
Huver & Associates, Inc. compensated?
By commission paid by the annuity company. We are NOT
compensated in any way by the defendant or insurer purchasing the annuity to
fund the settlement. There is no cost to the plaintiff or defendant and/or
insurer for customary services provided to broker the annuity. This includes
initial and ongoing consultations, annuity price / benefit analysis, settlement
document review, annuity application and policy issuance.
annuity structured settlement
And here we come to the conclusion
Waited for the all-new with us
