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. 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.
To protect against this, the structure can be configured to pay an irrevocable settlement trust for the benefit of the client. Second, structured agreements are protected from creditors and are generally safe in the event of divorce or bankruptcy. If you live in one of these states, before they force you to sell your structured settlement payments to some Slick Rick with a bag of dirty tricks for pennies on the dollar, think again. More than a decade later, the Small Business Labor Protection Act of 1996 set limitations on the types of personal injury cases eligible to receive tax benefits.
Most states impose fines and offer civil remedies for breaches of the state's Structured Agreement Protection Act. 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. If you choose to receive payment for your lawsuit through a structured settlement, you can determine if you start receiving the funds immediately or at a later date. 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.
If the amount of money is small enough, the injured party may have the option of receiving a lump-sum settlement. 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). . .