Addressing Possible Estate Liquidity Shortage
I came across an article in the June 2006 Journal of Financial Planning called “Beware of the Estate Tax Trap in Structured Settlements“ co-authored by Robert H. Breakstone, JD, LLM and Charles E. Alvis, CPA, PFS which points out certain issues that they believe financial planners should be concerned about. The trap that Breakstone and Alvis opine on should really be called an “Estate liquidity shortage”, for fear that there are not enough liquid assets in the Estate to pay the Estate tax, if any (emphasized), that is due. There are different ways of solving this issue, if it exists.
Commutation Riders Have Been Available Since the late 1990s
On August 1, 2006 I authored a piece entitled “Estate Taxes and Structured Settlements – Structured Settlements 4Real® Blog ” in response to the ongoing debate about the proposed repeal or proposed compromise scale back of the Federal Estate tax. In that article I discussed the now 30 year old concept of a “Commutation Rider ” which can be added to a structured settlement at inception that can serve to provide the necessary liquidity at death, if such liquidity is not available from other sources.
If you have these concerns then partner up or work with an experienced credentialed structured settlement or settlement planning professional who is a Certified Structured Settlement Consultant (professional designation available since 1994) and/or Master Structured Settlement Consultant (available since 2014), and/or Registered Settlement Planner (available since 2008), who deals with structured settlements on a daily basis. For them this is basic stuff!
Potential structured settlement annuitants, attorneys, CPAS and others should not just rush out and buy life insurance to cover the potential estate tax liability from a structured settlement. Concerned annuitants with existing structured settlements should have their financial professionals (1) run a present value calculation of any remaining guaranteed structured settlement payments due them (2) match that up with their other assets in order to calculate what if any estate tax would be due (3) Make sure to project reasonable growth and consumption into the future (4) determine if estate liquidity is in fact a problem (5) determine if the structured settlement has a commutation rider. It wouldve had to have been set up at the time of settlement and would be contained in the beneficiary section of the Settlement Agreement and Release as well as the Qualfied Assignment. There will also likely be a physical rider in the copy of the structured settlement annuity contract (6) assess the overall situation with this information.
Large structured annuities with deferred start dates of over 10 years and long guaranteed beenefit periods, established prior to 1997, are most likely candidates for examination. Commutation riders were available in 1996 but not all structured annuity issuers had them.
Life insurance can still be useful where there is an estate tax liability from a jumbo annuity and no commutation rider is in the contract. Moreover, life insurance will be useful where there is estate tax liability, commutation is not desirable and the beneficiary will want or need to continue to receive periodic payments.
Structured settlements tackle the Fear of Running Out (FORO), the thing that most people worry about the most
The tax advantages, competitive returns, spendthrift protection, and the certainty of knowing exactly what you’ll receive and when make a structured settlement an excellent option for long-term planning and financial security for those who qualify.
Last updated October 4, 2025
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