Thu. Jun 1st, 2023

who owns a structured settlement annuity

Who Owns a Structured Settlement Annuity?

A structured settlement is a court-ordered stream of tax-free payments to compensate an injured person. Generally, the funds are designed to last until the person or their family are no longer in need of them.

Structured settlements are also often used to compensate families who have suffered losses due to wrongful death. Similarly, minors may be entitled to receive structured settlements to replace income until they reach legal age.

The Settlement Owner

Structured settlement annuities are a way of funding periodic payments in connection with a tort claim settlement. The payments are generally tax free if they are made over a period of time.

In many cases, a defendant (or its insurer) purchases an annuity in connection with the settlement of a tort claim. The annuity is usually funded by a life insurance company. The annuity can also be funded by the United States Government.

Depending on the terms of the annuity, payments may be life-contingent. That is, they are determined by how long someone is expected to live based on their medical conditions and age.

There are a number of different types of structured settlement annuities. They can be purchased from an insurer or from a qualified assignment company. The purchase can be for a lump sum, a percentage of the remaining settlement funds, or a combination.

A structured settlement annuity is often a great way to provide income certainty for clients. It offers the flexibility to create a customized plan that meets their needs.

It can be used to help offset future expenses, such as a down payment on a home or college tuition. Alternatively, it can be used to cover income gaps that might arise due to disability or other unexpected events.

These annuities are a huge business for life and liability insurers. Unfortunately, they are not well-known to consumers. They can be difficult to understand, and they are almost always sold through a broker or planner who is licensed by the insurance company.

The annuity owner is typically the defendant or its insurer, although in some situations it may be a family member of the plaintiff. The owner can choose to split the settlement funds in any percentage amount and assign the payments to primary or secondary beneficiaries.

It is important for the settlement owner to be aware that a transfer of their structured settlement payments is subject to judicial review. The transaction must be fair and in the best interest of the settlement holder. It must include a disclosure statement that describes the transfer and the remaining structured settlement payments.

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The Payee

Structured settlement annuities are often issued in the resolution of personal physical injury claims and litigation and offer an attractive alternative to a lump sum payout or investments with taxable income. They do not fluctuate with market changes like stocks, bonds and mutual funds and are guaranteed by the insurance company that issues them.

A structured settlement annuity may be transferred to a third party, such as a buying company, for a lump sum or in installments over time. The purchase price is usually based on a discount rate that assumes future interest rates and the purchasing company’s own expectations.

The annuity’s payee may have been a recipient of tax-free payments under a structured settlement and proposes to make a transfer. The annuity issuer or the structured settlement obligor, as appropriate, may accept the proposed transfer and may not be required to divide any periodic payment between the payee and the transferee.

No transfer of structured settlement payment rights may extend to any payments that are life-contingent unless, prior to the date on which the payee signs the transfer agreement, the payee has established and agreed to maintain procedures reasonably satisfactory to the annuity issuer and the structured settlement obligor for periodically confirming the payee’s survival and giving the annuity issuer and the structured insurance company prompt written notice in the event of the payee’s death. This requirement is not intended to prohibit any other transfer of structured settlement payment rights by the payee.

SS 28A-105(b) defines the “payee” as any individual receiving or proposes to receive structured settlement payment rights. A transfer of structured settlement payment rights by the payee may not occur before a court approves the transfer and unless all other requirements of this part are satisfied.

The annuity’s payee has the right to seek and receive independent professional advice, as provided in this part. This right includes the right to obtain information about the effect of a transfer on the payee’s compensation. In addition, the payee has the right to receive a copy of the affidavit or certification that is required by this section before a transfer agreement is signed.

The Beneficiary

In a settlement of personal injury claims, a structured settlement annuity is a way to make periodic payments to the injured person over time. This method can provide financial security and dissipation protection, and may be a better option than receiving a lump sum at the end of the case.

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The beneficiary of a structured settlement annuity is the person or entity who receives the remainder of the payments after the original owner passes away. This person can be the recipient’s spouse, child, parent or other legal representative.

There are two types of beneficiaries: a primary beneficiary and a contingent beneficiary. A primary beneficiary receives all of the benefits named in the settlement agreement, including any remaining structured settlement payments rights. A contingent beneficiary only receives the benefits named in the settlement agreement if the designated primary beneficiary dies within the specified term of the structured settlement.

When a person settles a claim, they often want to name their family as beneficiaries of their structured settlement annuity. This is the most common way to make these benefits available to someone else after their death.

To do so, the payee must designate a beneficiary in writing with the insurance company that issued the structured settlement annuity. The insurance company will need to verify the name and signature on the beneficiary designation form before releasing the benefit proceeds to the intended recipient.

Many settlement owners also opt to sell their structured settlement payments rights to a buyer who purchases the payment stream. In this transaction, the purchase price is typically discounted to account for future interest rates.

The buyer’s purchase price will usually be lower than the amount of the annuity. If you are considering selling your structured settlement, it is important to shop around and compare offers from multiple buyers.

In this way, you can get the best possible deal. This can be especially helpful if you are considering distributing your settlement proceeds to a loved one or other beneficiary.

A structured settlement annuity can be purchased for a range of purposes, including life income replacement, dissipation protection and long-term care funding. In addition, a structured settlement annuity can be used as an estate planning tool. The benefit of using a structured settlement annuity is that the proceeds are tax-free to the individual receiving the payments. This is important because most personal injury cases are not tax-free.

The Inherited Beneficiary

The inherited beneficiary of a structured settlement annuity is someone who receives the proceeds from a deceased annuity owner. This can be a spouse, a child, a relative or another person with whom the annuity owner had a relationship.

In some cases, the inherited beneficiary of a structured settlement annuity may be a minor child. In this case, a guardian is typically appointed to manage the money until the child reaches age 18.

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It is important to note that in some states, the funds from an annuity must go through the probate process before being distributed. This can result in additional fees or costs to the estate.

Fortunately, the inherited beneficiary of a structured annuity has many payout options to choose from. These include a lump sum distribution, a nonqualified stretch provision, periodic payments and more.

Lump sum distribution – This is the most common option. It will give the beneficiary the remaining annuity’s value in one lump sum payment. This format has the smallest tax implications of all of them, but it does not allow the heir to stretch out the payments over their life expectancy.

Periodic payments – This is a more complicated option that allows beneficiaries to receive monthly, quarterly or annual payments based on their life expectancy. This is usually a good option for older beneficiaries who don’t need the money right away but would like to stretch it out over their lifetime.

A commutation rider – If a commutation rider is added to the annuity, then a portion of the payments will be refunded at death instead of continuing to be disbursed as usual. This is particularly beneficial for those who are on Medicaid.

The heir of an annuity can also decide whether to keep the inherited annuity as a life-only payment stream or sell it. Selling the annuity can reduce the taxes owed on the inheritance and increase the money a beneficiary can reinvest for their own future.

It’s a good idea to discuss the options with an experienced financial advisor before making any decisions about how to inherit your inherited annuity. This can help you make the most of your assets and protect your loved ones’ future.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.