Culver v New York LIfe Ins. Co.

In Culver v. New York Life Ins. Co., Civil Action No. 1:18-CV-3333-TWT, 2019 U.S. Dist. LEXIS 142212, 2019 WL 3886911 (N.D. Ga., Aug. 16, 2019), on cross-motions for summary judgment, the Court ruled that Administrator of estate and heirs of payee cannot compel the annuity issuer to make payment in a lump sum to the estate. 

According to court records and other publicly available information, the structured settlement annuity in question was established pursuant to the execution of a Settlement Agreement and Release dated June 30, 1998 to end litigation over the death of San Diego Chargers and Notre Dame running back Rodney Culver and his wife Lisa, in the 1996 Valujet 592 crash. Following the death of Culver's mother Wanda Hammond in 2017, her heirs and the Administrator of her Estate wanted the payments commuted to a lump sum. 

New York Life objected and cited that for such a commutation to occur , certain language would have had to be in the Settlement Agreement and Qualified Assignment.  The Court ruled against Ms. Hammond's heirs and the ruling was not appealed.

IRS PLR 9812027 on Commutation of Structured Settlement

The Allstate Life Insurance Company IRS Private Letter Ruling (PLR 9812027) that paved the way for death commutation riders, did not happen until December 18, 1997.  The PLR was sought to establish that a commutation in accordance with a fixed an determinable formula would not violate the non-acceleration clause within IRC 130.  Even though all current structured settlement annuity issuers offer commutation riders, the adoption by each company did not happen immediately. Although New York Life offers one now, I don't recall New York Life being one of the first ones to follow in Allstate's footsteps.

The primary purpose of the commutation rider, at the time  the PLR was sought in 1997,  was to provide a source of Estate liquidity when the Federal Estate exemption was only $600,000.  The exemption in 2023 is markedly higher at $12,920,000.  Source: Estate Tax | Internal Revenue Service (irs.gov)

In support of its Motion to Dismiss, New York Life argued,

"Where the purchaser of a structured settlement annuity seeks to grant the beneficiary the right to receive a single lump sum in lieu of any remaining periodic payments after the annuitant’s death, New York Life requires that the underlying settlement agreement, “qualified assignment” agreement, and the annuity application provide express language stating that the beneficiary has the right to receive the commuted value of any remaining payments in this manner, which language must also specify a formula for determining the discount rate to be applied to any remaining payments for purposes of calculating said lump sum. 

The Settlement Agreement does not contain language expressly granting Wanda Hammond’s beneficiaries the right to receive the commuted value of any Periodic Payments due after her death. The UQA does not contain language expressly granting Wanda Hammond’s beneficiary the right to receive the commuted value of any Periodic Payments due after her death.   The UQA does not provide any formula for determining the discount rate to be applied to any remaining Periodic Payments for purposes of calculating the commuted value of such payments". 

Always Name Beneficiaries and Periodically Review Them

By naming a beneficiary or beneficiaries, the insurance company can pay the beneficiaries directly instead of going through the decedent's estate.  This is an important lesson.  You can name multiple beneficiaries as long as you lay out what percentage each is to receive after your death.

Are there Any Alternatives?

An alternative for heirs, who need liquidity and who are willing to accept a discounted value for their future payments is to sell them in the secondary market. However the prices are not very attractive.  If you're sitting on a structured settlement established in the late 1990s and you don't need liquidity,  you may as well keep it.   You're probably getting a yield north of 7% tax-free on the amount that funded the structured settlement.

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Last updated October 9, 2023