Structured Settlements FAQ
What is a structured settlement?
A structured settlement is an important financial tool available to parties in litigation that provides core income stability with tax advantages. For more information on structured settlements and how you get one, please click here
exactly is Present Value in relation to a settlement offer? The carrier is
making structure offers by quoting present value but won't tell me the
A. Present Value ("PV") is merely an attempt to calculate a value to future payments in today's dollars. The mathematical calculation that is used in determining present value is dependent on the interest assumption (discount rate), which could be entirely arbitrary or could be based on an average. A difference of a percentage point could make a major difference in present value, possibly hundreds of thousands of dollars!
Present Value offers are approximations. Should you rely on it to settle your case, without knowing the assumptions, you won't really know what you are settling for. Consequently, you could end up inadvertently violating your contingency fee agreement by taking more than your share of the proceeds.
In Private Letter Rulings 8333035 and 9017011, the IRS ruled that disclosure by the defendant of the existence, cost or present value of an annuity will not cause one to be in constructive receipt of the present value invested in the (structured settlement) annuity. However, you may encounter one of the diminishing number of defense practitioners who will not disclose the cost, even today, because of the mistaken belief that such disclosure will result in constructive receipt. Today, more states are requiring disclosure for consumer protection. Florida, Massachusetts, Minnesota and New York have statutes requiring cost disclosure concurrent with the creation of a structured settlement.
In 2016, it would be less likely that the cost of a structured settlement would not be disclosed. New York, Massachusetts, Florida and Minnesota structured settlement portetcion laws require cost disclosure concurrent with the creation of a structured settlement. The Florida and Massachusetts structured settlement protection acts further require a Present Value ("PV") disclosure.
Watch John Darer's video podcast on Present Value at the 4structures.co, LLC video learning center under Structured Settlements 101 Video C.