by John Darer® CLU ChFC CSSC RSP
Education of the trial bar, judges, injured parties, guardians and other stakeholders is crucial to the viability of structured settlements as a case resolution and financial planning tool. This begs the question: WHO ARE THE EDUCATORS ABOUT STRUCTURED SETTLEMENTS?
Structured settlement brokers and settlement planners have a responsibility to have a mastery of the fundamentals of their craft. and to be able to competently articulate its terms. Without such mastery how can any of the "students" be expected to rely on them? One classic examples of "bad teaching" is "snopes-worthy" urban legend that "if the plaintiff knows the cost of the structured settlement it equals "constructive receipt" (and therefore loses the tax benefits of a structured settlement).
I find it absolutely astonishing that some companies put the worst foot forward. Take a structured settlement web site glossary for instance. The purpose of a glossary is to give visitors a quick reference guide to fundamental terms they may encounter in their search for information on structured settlements. If the terms are just dead wrong or carelessly written what use are they? What does that say about the company? What does it say about the industry if they let "the weeds" grow?
Case in Point 1
Is it possible that a qualified assignee can die? Apparently some structured settlement firms are telling you they can! Not only that by such logic, their "death" is what is standing in the way of the beneficiary getting its money. According to one company's website glossary as of 11/6/2007 at 10am, "a beneficiary is the recipient designated in the insurance policy in the event of a policyholder's death. Sometimes referred to as "contingent payee". Another firm has a similar definition that starts with "the person(s), estate or instrument"….. and uses the policyholder's death as an event trigger.
Comments: That company's definition and the other firm's is dead wrong. Consider that these appear in a structured settlement glossary. With a structured settlement the event that triggers payment to the beneficiary is the annuitant's death. Structured settlements are NOT owned by annuitants. In the majority of cases the annuity as "qualified fundng asset" is owned by the qualified assignee. The qualified assignee is the "policyholder". The qualified assignee is generally a corporate entity. If there is no qualified assignment, then the structured annuity is owned by the defendant or insurer. Corporations do not die. If they cease to serve the original purpose they may dissolve, if they get into financial trouble they may go into Chapter 11, liquidate, if business opportunties arise they may merge, go public etc. Tax assessing municipalities and the United States government do not die. If you are a structured settlement annuitant, with a viable annuity issuer, don't let any company misinform and scare you. Your beneficiaries will NOT have to wait until the policyholder liquidates in order to get their inheritance.
Case in Point 2
According to its website on 11/6/2007 at 10am, one company's glossary definition of IRC Section 130 includes" the law allows the assignee to pass payments to the recipients tax-free"
Comments: IRC 130 is titled "Certain Personal Injury Liability Assignments". IRC 130(a) states that "any amount received for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of any qualified funding assets". Assuming qualifications have been met under the IRC 104, payments to structured settlement recipients are excluded under IRC 104(a) as as damages defined in that code section. The tax exclusion under IRC 130 applies to the assignee. Indeed IRC 104(a) (1 or 2) qualification of damages is one of the requirements for the assignee to get the IRC 130 exclusion [see IRC 130(c)(2)(d)].
Case in Point 3
According to their websites on 11/6/2007 at 10am, one company and one insurer's definition of installment refund is "A lifetime annuity that has a guaranteed benefit equal to the premium amount".
Comments: . A more accurate definition would be an "an annuity that pays the remainder of the original premium (investment) to the beneficiary in periodic installments if the annuitant dies, but provides lifetime income to the annuitant".
Case in Point 4
According to its website on 11/6/2007 at 10am, one company describes "Injured Party" as the recipient of the legal action and the receiver of the benefits of a structured settlement. Another firm has a variation.
Comments: According to Nolo.com, "an action is another term for a lawsuit. For example, a plaintiff might say, "I began this negligence action last fall after the defendant, Ms. Adams, struck me while I was crossing the street at Elm and Main." Why would the person who got struck by Ms. Adams be the recipient of a legal action unless she injured someone? The legal definition of receiver is "a person that is appointed as a custodian of other people's property by a court of law or a creditor of the owner, pending a lawsuit or bankruptcy". Couldn't the term "injured party be better defined as "the party who has alleged that he/she/it suffered damages due to the actions of another party?" That covers a whole range of scenarios, including countersuits.
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