by John Darer CLU ChFC MSSC CeFT RSP CLTC
A Facebook advertisement associated with a veteran settlement planner solicits investors to "buy structured settlements" caught my eye this morning. It's misleading because nobody can actually "buy structured settlements".
Structured settlements are a form of settlement not a product.
For example a settlement can be resolved in consideration of a lump sum, periodic payments or a combination. Despite what you may see advertised, you simply can't go to a marketplace such as Wegmans, Publix, Shoprite, Stop and Shop, or Amazon to buy structured settlements.
What Investors Need to Know
1. Consider the definition of structured settlement found in the Internal Revenue Code Section 5891 (c)(1) states:
(c) Definitions. –For purposes of this section–
(1) Structured settlement. —The term “structured settlement” means an arrangement—
(A) which is established by-–
(i) suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2) , or
(ii) agreement for the periodic payment of compensation under any workers' compensation law excludable from the gross income of the recipient under section 104(a)(1) , and
(B) under which the periodic payments are–
(i) of the character described in subparagraphs (A) and (B) of section 130(c)(2) , and
(ii) payable by a person who is a party to the suit or agreement or to the workers' compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with section 130 .
2. IRC 5891(c)(2) defines Structured settlement payment rights. –The term “structured settlement payment rights” means rights to receive payments under a structured settlement.
Structured settlement payment rights or factored structured settlement payment streams are what is available for purchase in the secondary and tertiary markets.
3. IRC 5891(c) (3) Structured settlement factoring transaction. —
(A) In general. –The term “structured settlement factoring transaction” means a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration.
Is it too much to expect that a veteran settlement planner associated firm should get the fundamentals right in structured settlement investor facing marketing materials?