Structured settlement payments are often used to provide core foundational income as part of a well crafted settlement plan in personal injury, wrongful death and many other types of settlements. Structured settlements are ideally suited to address the thing that most people most worry about the most, money.
Lifetime guaranteed structured settlement income payment streams can help maintain the Plaintiff or Payee’s current standard of living. Depending on the annuity issuer, structured settlement payments may be made weekly, bi-weekly, monthly, quarterly, semi-annually, annually, every other year, temporary life or other payment modes. A death benefit (also known as a certain period or guarantee period) can be associated with the lifetime payments so that benefits will be paid for the certain period whether or not the Payee survives the entire payment schedule. For example a quote of $4,000 per month for life with 30 years certain means that payments will continue for 30 years (360 months), or the life of the Payee, whichever is longer.
Here’s how it works. First you pick a lump sum or sums and a time to receive them. You also pick a duration for a payment stream that the lump sum will convert to if interest rates rise above the reference interest rate set when the annuity is established, on the Annuity Benefit Determination Date. Each duration has a reference interest rate tied to U.S. Treasuries. You can select from 5,10, 15, 20, 25 or so years. Using the 20 year U.S. Treasury Bond rate as a reference example for a 20th year lump sum, in theevent the 20-Year U.S. Treasury Bond Yield Ratedoes not increase on the Annuity Benefit Determination Date, or the Payee is deceased on or before the Annuity Determination Date (10 days before payment is due), the Guaranteed Lump Sum Benefit will be paid. But if the 20 Year bond in the example is higher then you benefit from an income steam. Also see IRS PLR 202127039 (April 14, 2021).
Pacific Life offers an index linked annuity payment adjustment rider that provides future periodic payments will increase annually based on positive changes in the Standard and Poors 500 (S&P 500) between two measuring points (point to point) with a cap of 5%. Payments will not reduce if the S&P 500 goes down between the two annual measuring points. The first adjustment would be effective on the contract anniversary following the start of payments that are being indexed and subsequent adjustments would occur on future contract anniversaries. Only structured settlement income payments are eligible. Can be used for structured settlements paid to the plaintiff or for structured attorney fees. The annuity issuer, Pacific Life Insurance Company, (or Pacific Life and Annuity Company, in New York), has obtained favorable IRS Private Letter Ruling 201435006 to support its Index Linked Annuity Payment Adjustment Rider (ILAPA).
Independent Life Insurance Company offers iStructure Select, an innovative, index-linked structured settlement annuity, designed to meet the evolving needs of plaintiffs and their attorneys. iStructure Select is a fully digital structured settlement solution designed for end-to-end efficiency, from illustration to final payment and everything in between,” according to George Luecke, President of Independent Insurance Group and COO of Independent Life. “By combining technology, protection, and growth potential, this time with the added dimension of index choice from world-renowned financial institutions, it’s the latest step in our ongoing commitment to delivering innovation to our brokers and payees.”
iStructure Select is unique in that it allows clients to participate in market-driven growth by linking their structured settlements to leading financial indexes, including:
The Prudential Insurance Company of America introduced Income Advantage, an index linked structured settlement annuity in October 2023. Prudential sought and received favorable IRS Private Letter Rulings addressed to Prudential Insurance Company of America and its qualified assignment company, Prudential Assigned Settlement Services Corporation (PASSCorp).
Period certain structured settlement payments are paid only for a fixed period of time. Different modal structured settlement payments may be utilized when income is only needed for a specific time period. Modal Payments can be combined with a lump sum payment, at the end of a specific structured settlement payment period, to simulate the cash flow from a bond held to maturity. Often used for payments timed to help fund college or grad school, or to layer retirement income for structured attorney fees. Certain also means that payments are guaranteed and will be made whether or not the Payee survives the entire payment schedule. Also known as Annuity Certain.
Treasury Funded Structured Settlements use a combination of Treasury Inflation Protected Securities (TIPS) where the bond’s underlying principal rises and falls with changes in the inflation rate (currently the CPI-U), and STRIPS to guarantee deferred lump sum payments. Interest paid on the TIPS adjusts along with the principal. Also known as “T Bond Trust”.
Market Based Structured Settlements are acustom structured settlement payment option for plaintiffs, or forattorney fee deferrals, which allows for participation in the returns of a managed equity market portfolio, with scheduled payment times based on an objective and determinable formula. Income payments will fluctuate to reflect the performance of the investment portfolios underlying the selected investment buckets and can be structured in different modes and durations. There are several market based structured settlement options with and without an annuity wrapper to help meet client objectives and taste.
For example one of the options is split funded between a traditional fixed structured settlement payment flow from an annuity, paired with variable periodic payments drawing from a trust that is powered by Vanguard, the well known money manager. The program is dubbed a “Growth Structured Settlement”. Other options in the market based structured settlement product spectrum. for the plaintiff or attorney to use their own money manager are also available. There is a prequisite minimum 20 year combined fixed variable duration with the Growth Structured Settlement. Click the above link or call us at 888-325-8640 for more specifics.
WARNING These payment streams, often referred to as Factored Structured Settlement Payment Streams, Acquired Structured Settlement Payment Rights, Reassigned Structured Settlement Payment Rights, Recycled Structured Settlements, Structured Settlement Retreads, “Other People’s Structured Settlement Payments,” Secondary Market Income Streams, or misleadingly termed Secondary Market Annuities (SMA, SMIA), are marketed using deceptive tactics. The term “annuity” is employed in pitches to investors, especially seniors, retirees, and vulnerable individuals, as a familiar term to reduce skepticism. Some of the worst actors in this industry even misuse trademarked insurance company logos as part of their misleading strategies. If you are pitched to buy structured settlement receivables, especially by someone using any of the above terms, be sure to read every word on this page below.
If you drill down to the structured settlement transfer paperwork you will find that:
There is significant case law substantiating that acquired structured settlement payments streams are not annuities. For example, inWestern United Life Assurance Company v. Hayden, 64 F.3d 833 (3rd Cir. 1995), then-Judge (later U.S. Supreme Court Justice) Samuel Alito, on behalf of the Third Circuit Court of Appeals, repeatedly pointed to the difference between rights that a payee has to future payments under a settlement agreement and the lack of rights of a payee under an annuity purchased by the obligor to fund such payments. Visit our July 6, 2021 blog Investing in Structured Settlements, a Guide For the Unwary.
Structured settlement receivables are not annuities. The annuities that fund structured settlements can’t be sold by the original Payee because they do not own them.
For those that it is appropriate for (and there are not many injury victims), segments ofstructured settlement payment receivablescan be purchased in the secondary or tertiary structured settlement market at attractive rates and plugged into the need/ time continuum. While the income derived from a purchase of factored structured settlement payment streams in such a manner, is not completely income tax free (unlike the traditional physical injury structured settlement), it may be attractive, even on an after tax basis, particularly on shorter durations, or where there are offsetting tax deductions that can be used (such as ongoing medicals). Unlike structured settlement annuities, which can be quoted directly from software available from life insurance companies, such payments rights are dependent on inventory in the secondary market or tertiary market. Often purchased via a settlement management trust for simplicity of administration for the plaintiff, or an IRA or other qualified retirement plan.
CAUTION! There are transactional risks in structured settlement receivables that are not present in legitimate structured settlement annuities. Be mindful that such risks may not be disclosed in the marketing hype.
For example:
