Litigation

To highlight the issue let's start with an adaptation of the classic courtroom interchange between Lieutenant Lionel Caffey and Colonel Nathan Jessup from "A Few Good Men":

Structured Settlement Website: You Want Answers?

Plaintiff: I think I'm Entitled

Structured Settlement Website: You Want Answers?

Plaintiff Attorney: I want the Truth!

Structured Settlement Website: You Can't Handle The Truth!

A structured settlement industry website presents the following as facts:

"Can I restructure my payments into a lump sum? THEN ANSWERS

Again, the federal law that assures the payments you receive are on a tax-free basis, also prohibits converting your payments into a lump sum."

The series of Q&As on the websites also provides further inaccuracy:

"...the federal law designed to provide these benefits to you on an income tax-free basis also prohibits you from assigning or encumbering them".

Comments

1. A structured settlement is generally considered to be a series of periodic payments, although some structured settlements may be a single lump sum.
2. The proper phrasing of the question should be "May a structured settlement, or part of a structured settlement, be commuted, or reduced to a lump sum payment?
3. Federal law DOES NOT prohibit the transfer or sale of your right to receive periodic payments from a structured settlement for a cash lump sum.
4. A body of Federal and state laws govern what is known as a structured settlement factoring transaction.
5. In enacting the Victims of Terrorism Tax Relief Act of 2001, which created Internal Revenue Code Section 5891 , Congress expressly acknowledged the existence of "structured settlement factoring transactions" by defining such term at IRC 5891(c)(3)(A) and establishing requirements for the purchaser to avoid an onerous 40% excise tax on the "factoring discount" in such transactions.
6.  Such requirements include that the transfer of structured settlement payment rights be approved in advance in a qualified order. that is issued?
   (i) under the authority of an applicable State statute by an applicable State court, or
   (ii) by the responsible administrative authority (if any) which has exclusive jurisdiction over the underlying action or proceeding which was resolved by means of the structured settlement.(see IRC 5891(b)(2)(A) and (B)
7. The United States Internal Revenue Code defines the term ?structured settlement factoring transaction? as 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.
8. A structured settlement factoring transaction IS NOT recommended UNLESS you have a well defined essential need and have exhausted all other sources to raise cash. Speak to a credentialed financial professional well versed in structured settlements and your lawyer for guidance.

FINANCIAL LITERACY, GET IT!