Is prudent diversification of a large structured settlement a thrilling exercise for structured settlement planners these days, or is more like spinning plates on sticks while balancing by one foot on a ball? Perhaps a little of both!
A structured settlement lock-in means that the structured settlement annuity issuer will guarantee the cost of a specific benefit stream in exchange for the "quid pro quo" of a commitment to accept or purchase. The guarantee could be a week or, even a year.
A structured settlement lock-in is a critically important tool available to those who place structured settlement annuities such as structured settlement brokers, settlement consultants, settlement professionals and settlement planners. A structured settlement lock-in may offer critical benefits to claimants, plaintiffs, defendants and insurers alike at the time of case resolution. It's important to know what a lock-in is, how it can help and its limitations. Let's get started!
It is important to understand that you are locking in a benefit stream and the internal rate of return derived from a payment of a premium by a specific date. The premium will produce income and/or lump sum annuity payments at times and amounts to be specified in the settlement agreement.
In such cases the settlement documents provide an agreement by the parties for each of the structured settlement payment dates tobe moved an equal number of days between the anticipated (locked in) funding date and the actual funding date, if earlier or later. This is one way to preserve the benefit amounts so that Court submissions can be made and that judges can view the exact benefits that the plaintiff is due to receive,
Those carriers who charge lock in fees muck up the works a bit, because it means there cannot be an exact day for day date slide. In my opinion, it would be better for the carriers to instead provide seamless pricing. One forward thinking structured annuity company, Pacific Life waives lock in fees for 6 months.
Apparently some are putting so-called "recalibration clauses" into settlement documents, which give a judge examples "of what the benefits could be" with the caveat that the exact benefits will be calculated after court approval, or at some later date. According to one tax lawyer this author spoke to the IRS could focus on who bears the benefits and burdens of the transaction (the increase or decrease in rate, the extra lock in fees) and determine that the bearer owns the property. This is equally problematic for both plaintiffs and defendants. For defendants, the assignment company could unwind the assignment and for the plaintiff they may not achieve their financial objectives.
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