by Structured Settlement Watchdog
Stone Street Capital Blogger: Will he Care Enough to be Accurate?
Or Will he Stay in the “Awarded a Structured Settlement” Vortex?
Says Will, one of Stone Street Capital’s bloggers “One question we hear rather regularly is what is the difference between a “structured settlement” and an annuity. A “structured settlement” is defined as a tax advantaged financial settlement awarded to an injured party from a personal injury lawsuit, that is paid out over time rather than in one lump sum payment. The agreement is generally between the defendant or their insurance company and the plaintiff who is the injured party.
A structured settlement will pay the injured party in regular intervals often monthly or quarterly over a set period of time which usually lasts 10-30 years depending on the circumstances. The settlement is funded by the purchase of an annuity that then pays the injured party. An annuity is the financial vehicle that usually funds a structured settlement”. “Will” on the Stone Street Blog
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- Settlements are not awards. For instance, if Lex’s dog, Luthor, bites you, and after filing a lawsuit against Lex, you later agree to withdraw the case in exchange for $5,000 upon realizing that you were provoking the dog and both parties acknowledge Luthor should have been leashed—that is referred to as a settlement. Lex did not “award” you anything; instead, both parties mutually agreed to a resolution. Conversely, if a judge, jury, or arbitration panel determines the amount to be paid, then it is considered an “award.”
- The definition of a structured settlement is somewhat accurate, but where exactly is a “structured settlement” defined in that manner? Will refers to “THE definition,” yet for the purposes of IRC 5891 (the Internal Revenue Code section governing Will’s and his company’s business), his definition is incorrect.This is quite embarrassing for both Will and Stone Street Capital.
- A structured settlement can be paid over the lifetime of the payee, a period which may be longer .than 10-30 years
- IRC 130(d) permits a structured settlement to be funded with either or two qualified funding assets (1) an annuity or (2) an obligation of the United States government.
- Will does not adequately address the question he raises, namely, the distinction between a structured settlement and an annuity.
- Annuities have existed for at least 1,800 years, originating with contracts known as annua, issued by ancient Roman speculators to Mediterranean shipping ventures, providing a stream of payments in exchange for an upfront sum. In the United States, the first recorded annuities appeared in 1759, established by the Distressed Presbyterian Ministers and Distressed Widows and Children of Ministers. Conversely, structured settlements emerged in the late 1970s and became widely adopted starting in 1983.
- A structured settlement is a settlement planning alternative. An annuity is an insurance product issued by life insurance companies designed to accumulate, or to provide payments at specified intervals.
- A structured settlement annuity is a type of annuity designated as a “qualified funding asset” under IRC Section 130(d).
- While the term structured settlement may some times be confused with an annuity, technically it is not an annuity.
- While Stone Street describes its blog as “An educational, information exchange for the entire structured settlement industry,” it appears they could benefit from a stronger foundation in the fundamentals.
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