by Structured Settlement Watchdog
Ever read a sentence that starts out correct and then turns into a "steaming pile", but if you didn't read it entirely you might have a different impression?
One of my competitors, whose professional success I have a great deal of respect for, states the following on her website:
"Tax-free structured settlement payments offer added safety in the face of rising medical costs and inflation – and payments are often sizably greater than a distribution from a lump sum"
Comments
- Structured settlements, which are for payment of damages that qualify under IRC 104(a)(1)-workers compensation or 104(a)(2)-physical injury or physical sickness, are income tax free, but not estate tax free
- "Structured settlements offer added safety" is a true statement, but the qualifier ("in the face of rising medical costs and inflation") unfortunately makes it false. Structured settlements that are funded with annuities can at best provide a fixed increase that must be determined when the structure is created, compounding annually. This is not bad, but it requires a level of clairvoyance that simply cannot be represented as a cost of living adjustment that safely adjusts to the rate of inflation of medical expenses as my competitor suggests. It can adjust to an a fixed estimate of that rate of inflation
- One can argue that income tax free structured settlements funded with United States Treasury Inflation Protection Securities (TIPS) provide the maximum safety and protection against inflation.
- Finally payments are often greater than a distribution in a lump sum is just double talk for the fact that each future structured settlement includes an interest component. The statement is deceptive in that it ignores the fact that a lump sum is income tax free and can be invested. Investment risk is a whole other story. If you hold yourself out as a "settlement consultant" why not use recognized financial tools such as an Internal Rate of Return Comparison (IRR) or a Monte Carlo analysis instead of making a statement so easy to disprove?
- To my worthy competitors. Why not demonstrate a higher level of financial literacy? Simply say what the structured settlement solution does do NOT what it does not do. Don't use complex compound sentences which (whether or not intentional) have the potential to trick the reader into believing something that is really false. WHY? Because I'm going to call you on it. Better me than a regulator or your client's lawyer.
Leave a Reply