by Structured Settlement Watchdog®
There is just so much junk written about structured settlements from people who have no relevant professional qualifications whatsoever. So in this and future posts in this series we will highlight the flotsam and jetsam, the silly and the illiterate with the goal of:
- Educating the public with the true facts about structured settlements
- Highlighting bad sources of information with an explanation why they are wrong
- Discouraging the publication of poorly researched tripe by identifying the names of those who author the junk, the publications who publish the junk AND the owners of the websites who host the inaccurate information . These folks will be put "on the radar screen" in the hopes that they are motivated into doing a more accurate job of writing or vetting the next time.
- Discouraging companies who might pay amateurs to write the inaccurate stuff on their behalf.
- Having a few laughs in the process.
So let's get started with:
1. "It is common knowledge that annuities are usually very profitable since they come with very large commissions for insurance companies" Jessica N. King from EZ Articles "Structured Settlements: Factors to Consider"
Comment:
Insurance Companies pay commissions they don't receive them.
2. "If you settle for a structured settlement, you are guaranteed an income will be available for all your medical expenses over the agreed upon time frame". Improvingyourlife(dot)com
Comment
When you settle with a structured settlements you are contractually guaranteed an income will be available. You are not guaranteeing that it will be sufficient for all your medical expenses.
3. "The insurance company does not need to worry about fronting all the money at once and they often pay you through annuities". Improvingyourlife(dot)com
Comment
Structured settlement annuities are purchased with a single lump sum. The insurance company must come up with full cost of the annuity. It cannot be paid in installments.
4. "If you do get desperate for cash, you can sell all or some of your structured settlement for some quick cash. This will help you cover the immediate expenses you have and you can invest the rest or put it into a savings account or a CD" Improvingyourlife(dot)com
Comment
Credibility killer for improvingyourlife(dot)com. These "goblins" would have you take a big haircut on the present value of a stream of income tax-free payments to buy a taxable CD or savings account. On October 29, 2010 the average rate for a 6 month CD was 0.81%; 1 year CD 1.13% and 5 year CD 2.34% taxable. Average money market rate was 0.68%, or 0.76% if you have more than $10,000. (Source: Bankrate.com) If still in doubt please refer to this taxable equivalent yield chart, net after tax yield chart
5."Structured settlements have a large tax advantage over a lump sum. You will need to select the right annuities and have minimal input in the money. If you are able to do this, you will receive the money tax-free or for a minimal tax amount". Improvingyourlife(dot)com
Comment
Both structured settlement payments and lump sums at settlement are income tax free IF such payments are characterized as damages of the type that are excluded under IRC 104(a)(1) or 104(a)(2). If you are pondering what to do about elements of your settlement that involve taxable damages that do not fall within the IRC 104 tax exclusion, then you may be able to achieve tax deferral via a non qualified assignment.
6. "A structured settlement will guarantee your income for life and you do not need to worry about how you are going to survive". Improving yourlife (dot)com
Comment
An odious malaprop that could be a candidate for the Yogi Berra Hall of Fame. No further comment required LOL!
7. If you choose to have a lump sum, you need to invest this money on your own. Not only will you need to pay taxes on the initial amount you are given, but you will need to pay taxes on any interest you earn with the invested money. Improvingyourlife.com
Comments
No you don't! You can hire a money manager or finncial adviser. You do not need to pay taxes on the initial amount provided such payments are for damages that qualify as physical injury, physical sickness, or workers compensation and fall within the exclusions described in the comments to #5. If you take a lump sum and invest you DO have to pay taxes on the interest earned on that lump sum, or on any capital gains.
8. "In order to receive the structured settlement, the individual must agree to drop their case before they take it to court". Improvingyourlife(dot)com
Comment
Many cases are settled as a case comes to trial, during jury selection, during a trial, post trial while the case is on appeal. The plaintiff or calimant must agree to drop their case in order to receive a tsrucured settlement. A structured settlement is part of the consideration for the release of claims for damages.
9. "Normally the structured settlement is paid using annuities. The annuity policy will cover all of your medical expenses and other costs over the course of the settlement". Improvingyourlife(dot)com
Comment
Annuity contracts simply guarantee income , not medical expenses and other costs. Even a medical insurance policy will not cover ALL of your medical expenses.You can design a structured annuity to track predictable costs.
10."The funds from an annuity are tax-free as long as you do not control the funds. This is why it is important to pick a good annuity company and split up the funds with several companies" Improvingyourlife(dot)com
Comment
Non sequitur alert! The rationale for diversification has absolutely nothing to do with the taxation of structured settlements.
11. "Some insurance companies will profit off the annuities because they have worked out agreements with the brokers. They will sell your structured settlement to this third party firm and receive a 20 percent commission for doing so". Improvingyourlife(dot)com
Comments
Bollocks Bolognaise!
12. "Selling your structured settlement to receive immediate cash will be taxed. You are forfeiting your tax benefits and you will have to pay immediate tax on the amount you sell." Improving your life(dot)com
Comments
If you are the original claimant and receiving structured settlement payments that you contemplate selling,there is no tax on the proceeds of the sale unless the terms of IRC 5891 are not complied with. In such case the purchaser is socked with an excise tax of 40% on the factoring discount.
13 ."You want to make sure that the company you choose (for factoring) is going to be able to help you out from the moment that you accept the structured settlement". improvingyourlife(dot)com
Comment
It's quite cynical to think that you need a factoring expert the moment you accept a structured settlement. The schmuck who wrote the article may be into "wet ink" structured settlement factoring deals, but such deals are a sure money loser.
Postscript
We checked and Improveyourlife(dot)com is now defunct (June 2017). Many of the pop up inaccurate sites do not last long.
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