by John Darer® CLU ChFC MSSC CeFT® RSP CLTC
Inherited a Structured Settlement?
It means that someone who you loved (and loved you), who has recently passed, was receiving structured settlement payments that were part of a legal case
- Your loved one agreed to the payment schedule when the settlement was negotiated.
- If they were a minor at the time of the settlement, the settlement would have to have to have been agreed to by the minor’s parents, or a court appointed guardian,
- Furthermore, the Court would have had to approve the overall settlement, including the structured settlement payments.
What are the Benefits to Structured Settlement Beneficiaries?
There are benefits to structured settlement beneficiaries whether the payments come from a structured settlement annuity or Treasury Funded Structured Settlements, Index Based and Market Based Structured Settlements.
- If the structured settlement was created as payment for damages in a wrongful death, physical injury or physical sickness case, or the settlement was in resolution of a workers compensation claim the payments are going to pass to the beneficiaries income tax-free.
- A structured settlement offers a stable source of income that is unaffected by the ups and downs of the stock market, real estate market, or the recent municipality pension bubble where a number of cities have filed for Chapter 9 bankruptcy.
- If you are used to an income stream, the continuation of that stable income stream may be a source of comfort.
No Rush to Make Decisions for Structured Settlement Beneficiaries
- If you inherit a structured settlement, it is important not to rush your decisions.
- As the designated beneficiary, you will need to file a claim with the annuity issuer or assignee, typically by providing a copy of the death certificate.
- You may also be required to verify your beneficiary status.
- To have payments deposited directly into your bank account, you may need to complete standard administrative forms.
- Additionally, you can designate your own beneficiaries; however, any changes must be made in writing, and some insurers require notarized signatures.
Commutation Riders
Some structured settlements have commuation riders tjat convert future payments (in whole or in part), to a lump sum as of the date of death, if such commutation rider was part of the original settlement
A commutation rider on a personal injury structured settlement began to be seen on certain cases in or after 1995, when the IRS issued a Private Letter Ruling, blessing the income tax-free status of such commutations for the first time (subject to the conditions stated in the ruling). Commutation riders are commonplace on (1) large settlements where estate liquidity needs have been anticipated and (2) where structured settlement payments are made to a Supplemental Needs Trust and the deceased plaintiff was a New York resident at the time the legal case settled.
Structured Settlement Factoring Companies
You’ve seen some of them on TV, or seen them advertised on the Internet. Perhaps you’ve received a mailer, or been badgered by phone calls. While it some cases It may make sense to consider transferring some of your structured settlement payment rights, this should only come after thorough consideration of your needs, and whether those needs can be satisfied from other sources, as well as the impact of a potential sale or transfer on your future benefits.
One situation where you might need to consider this option is if a structured settlement annuitant passes away and the present value of the “certain” and/or “guaranteed” but not yet received payments, combined with other assets, exceeds the state death tax exemption amount. While this is harder to trigger at the federal level, some states have much lower thresholds. For example, Maine’s exemption will drop to $1,000,000 in 2026, and Massachusetts has a $2,000,000 exemption. See state inheritance tax thresholds for details.Structured Settlements | Tax Benefits of Structured Settlements 2026. If there is no liquidity in the estate to pay the estate or inheritance taxes then a sale of a portion of structured settlement payment rights may be necessary.
Warning! There’s virtually no meaningful regulation of sales practices in the structured settlement secondary market
All states have a Structured Settlement Protection Act (SSPA) that mandates a court approval process to determine whether selling payments is in the seller’s best interest. While some companies operate ethically, many others engage in predatory practices, using questionable methods and aggressive sales tactics to exploit individuals and deprive them of their money.
Structured settlement beneficiaries should take their time
Consult with the structured settlement consultant who created the structured settlement, if you know who that is. You can also consult with your lawyer, or an independent financial professional who is a structured settlement expert. Only deal with licensed and credentialed experts.
Related Reading
Structured Settlement Beneficiary | Why It’s Important (4structures.com)
Naming a Beneficiary for Structured Settlements: Key Benefits – Structured Settlements 4Real®Blog February 22, 2022
Beneficiary Designation in Structured Settlements – Structured Settlements 4Real®Blog Aorul 5, 2008
Are You a Life Insurance Beneficiary? – Structured Settlements 4Real®Blog May 6, 2011
Leave a Reply