Structured Settlements

Area of Specialization

A structured settlement is a financial arrangement in which a portion of a settlement is received by the claimant in the form of periodic payments. By accepting payments over time, the claimant can design a guaranteed, tax-free, predictable stream of income at a competitive rate of return, specifically tailored to meet their personal needs. These payments are often used to provide for future wage replacement, ongoing medical care, education or rehabilitation, and basic living expenses, and to give the claimant piece of mind that they will not outlive their savings.

The plan design, and the frequency and size of each periodic payment, are determined exclusively by the claimant, providing the flexibility to match these payments to future needs and goals as closely as possible.

Kipnes Crowley Group LLC

FAQs

Studies have shown that claimants who receive large sums of money typically squander the vast majority of that money in the first five years. Recognizing the need to protect these claimants, in 1982, Congress passed the Periodic Payment Settlement Act, which encourages the use of structured settlement annuities by making them tax-free. Since that time, federal and state governments have enacted a variety of measures to further promote the use of structured settlements. In fact, a number of states, including New York, require that certain verdicts involving future damages be paid in the form of a structured settlement annuity.

  • Tax-Free Income: In any case involving a physical personal injury, all structured settlement payments are 100% tax-free, pursuant to Internal Revenue Code §104. That means no Federal, State, or local tax, ever. Few other investments can match this benefit.
  • Guaranteed Income: Structured settlement annuities involve no market risk. Every periodic payment is 100% guaranteed by the life insurance company that issued the annuity contract. KCG places structured settlement annuities with some of the largest, safest, most highly-rated life insurance companies in the nation.
  • Lifetime Income: Annuities are the only investment vehicle that can provide guaranteed income for life. A claimant receiving a lifetime annuity never has to worry about reinvesting funds or outliving their benefits.
  • No Fee, No Worry Money Management: A claimant receiving a structured settlement annuity will never pay any management fees, advisor fees, legal fees, accounting fees, or any of the other fees associated with most investment plans. In addition, the claimant does not have to make ongoing investment decisions because their guaranteed periodic payments will never be affected by the stock market, interest rates, or any other economic factors.
  • Competitive Rate of Return: A structured settlement annuity’s rate of return is determined by interest rates at the time the annuity is placed. This rate of return will always be competitive with other fixed income products and, because a claimant receiving a structured settlement annuity does not pay taxes or fees, the comparable yield on the annuity is often much higher.

Put another way, an investor paying taxes and fees would have to generate a considerably higher rate of return just to match the real return on an annuity. To achieve this higher return, the investor would almost certainly have to take on significant market risk, whereas a structured settlement annuity involves no market risk.

A structured settlement is available in any personal injury case and can be beneficial to the claimant in any case where all of the settlement monies are not needed to satisfy immediate expenses. The following types of claimants often find a structured settlement to be especially advantageous:

  • Children and Incompetent Individuals: Many states, including New York, limit the types of investments that can be made on behalf of these claimants. Structured settlement annuities are always permitted, and are generally preferable to the other allowable investments. In the case of a child, annuity payments can also be deferred to lessen the risks that come with receiving large sums of money at a young age.
  • Financially Unsophisticated Claimants: The terms of a structured settlement annuity are easy to understand – the life insurance company is required to pay the benefits listed in the annuity contract. The claimant avoids the burdens, risks, and expenses involved in investing the money themselves. The annuity also protects the claimant from third parties who might squander their money, whether well-intentioned or not.
  • Claimants Receiving Large Sums of Money: When a claimant receives more money than is necessary to satisfy immediate expenses, it is almost always advantageous to place a portion of that money into a structured settlement annuity because of the advantages conferred on structured settlements (e.g., tax-free, guaranteed, no fees or commissions, etc.) that are not provided by other fixed-income investments.
  • Claimants Who Require Lifetime Benefits: An annuity is the only investment product that is guaranteed to last a lifetime. This makes it especially beneficial to any claimant who will require lifetime income (e.g., for ongoing medical care), or who simply wants to ensure they will not outlive their savings.
  • Risk-Averse Claimants: Structured settlement annuities are an attractive investment for any claimant who wants to invest their money, but also wants to avoid the risks of the stock and bond markets.
  • Claimants Who Require Consistent Income: For claimants who need replacement income or ongoing medical care, an annuity can provide predictable, consistent benefits specifically designed to meet these needs, for a lifetime if necessary.

In order to remain tax-free, the structured settlement must be implemented at the time of settlement. If the claimant were to receive the settlement monies and then purchase the exact same annuity after settlement, the annuity would be taxable. For this reason, structured settlement annuities are purchased by the defendant (or their insurance carrier) for the benefit of the plaintiff. In conjunction with this transaction, the defendant will almost always execute a qualified assignment pursuant to Internal Revenue Code §130, which allows the defendant to settle the matter with finality, despite the ongoing periodic payments to the claimant.