In addition, if an injury victim goes into debt and creditors make claims, their assets could be exposed to these claims. Claims by the Judgment Creditor Against Structured Settlement Annuities. In addition, structured agreements offer greater protection in the event of divorce or bankruptcy. After the advent of the factoring industry in the early 1990s, nearly every state has passed a structured settlement protection law.
Laws Protect Beneficiaries of Structured Settlements of Unscrupulous Companies Buying Liquid. Payment of a lump sum to the injury victim for future periodic structured settlement annuity payments is normally made at a steep discount, with some discount rates being evidently unfair. Given the unsophisticated population selling structured settlements, the amount of publicity by factoring companies, and past abuses by factoring companies, many states have enacted Structured Settlement Protection Laws and the federal government decided to enact protective legislation in the form of Section 5891 of the Internal Revenue Code. Because it's defined as “allocation” rather than “asset,” your structured settlement annuity avoids probate challenges.
It also protects creditors' settlement income from divorce and bankruptcy (see). One method that deals with clients in any of the above situations is to pair a structured agreement with a trust. A structured agreement is created when the defendant funds an annuity for the benefit of the plaintiff. This funding should not be received in a constructive or real way by the plaintiff, so it is important to make a decision about whether a structure will be used before the money changes hands.
If you go to the lawyer's trust account, the option to structure is ruled out. The annuity will be paid in increments for a certain number of years or may be guaranteed until the customer dies. Increases can be paid monthly, quarterly, semi-annually, or annually. Structured settlements are paid over time as a stream of tax-free payments, rather than a single lump sum.
You can “collect” your future structured settlement payments by selling them to a factoring company at a discount if you need immediate cash. Most structured settlements stem from personal injury, wrongful death, or workers' compensation claims. When a victim of physical injury recovers money, either by agreement or by verdict, the question arises of the tax treatment of that recovery. When a plaintiff receives a lump sum settlement, they may spend it too quickly, depriving them of the long-term financial security that future payments could provide.
The law served as the federal government's acceptance of the IRS ruling and extended restrictions to state governments, prohibiting them from taxing income from structured settlement of personal injury cases. Settlement payments to the injured party did not count towards their gross income and, therefore, they were not required to pay taxes on the money received. The main differences between these settlement options are in the areas of financial security and long-term taxation. Unlike a structured settlement, simply receiving a lump sum provides no protection against waste, as money can dissipate quickly.
Often, the protection that structured settlement annuities are afforded under the law in terms of lawsuits and creditor claims is overlooked when considering whether one should be implemented for personal injury recovery. TX 199 (having a structured settlement annuity paid to debtors after the death of their children in a car accident was entitled to exemption as an annuity under Texas law). By 1985, the National Structured Settlement Trade Association was formed to preserve and promote structured settlements for injury plaintiffs through. Section 58/91 of the Internal Revenue Code requires that all structured settlement factoring transactions be approved by a state court, in accordance with qualified state law.
The creditor argued that the annuity contract could not be classified as an exempt annuity contract because it was, in substance, a non-exempt structured settlement. The Florida Supreme Court held that an annuity contract granted to the debtor by a defendant to fund a structured settlement of a personal injury case was exempt. . .