Florida Structured Settlement Protection Act
A structured settlement is a legal arrangement that enables injury victims to receive periodic payments rather than a lump sum. These settlements have many advantages.
Florida and other states have enacted structured settlement protection acts to protect recipients of these payments from unscrupulous companies. This article explains how these laws work.
When an injured party receives a structured settlement, the funds are distributed over a period of time rather than in a lump sum. These payments provide a reliable source of income without the burden of managing large investments. Many legislatures have enacted laws to protect the financial interests of those who receive structured settlements.
State and federal policymakers consider the recipients of structured settlements to be a vulnerable population in need of special protections. These statutes are designed to allow the sale of structured settlement payments only when it is in the best interest of the payee, known as the claimant, and any dependents.
Cost disclosure is an important part of the process for transferring structured settlement payment rights. This disclosure ensures that the buyer has accurate information about the value of the transfered payments.
The law requires that the seller be provided with an itemized list of all fees and disbursements involved in the transfer, and a good estimate of the amount. It also requires that the seller receive independent professional advice before transferring any structured settlement payment rights.
In addition, the seller must be given a discount rate for the value of the transferred structured settlement payments and a finance charge to cover expenses related to the transfer, including legal fees, disbursements and transaction costs. The discount rate cannot exceed prime plus 5 percent, and the finance charge cannot exceed 2 percent of the net amount payable to the seller.
This type of disclosure is required by all state and federal structured settlement protection acts, including those in New York, Massachusetts, Florida and Minnesota. The disclosure must be made in a format that is easy to understand, such as bolded text on a page no smaller than 14 points.
The florida structured settlement protection act also requires that the factoring company acquiring the payments disclose the difference between the present value of the sold payments and the present value of the annuity contract if they are kept as-is. This information is helpful to judges, as it helps them determine whether a transfer of the payments will serve the best interests of the payee and his or her family. It can also help judges evaluate the fairness of a sale.
Present Value Disclosure
As a buyer or factoring company that purchases structured settlement payments, the law requires you to provide some information. This includes the gross amount of payments to be sold, as well as the discounted present value of the payments. The present value of the payments is based on an assumption of the dollar per annuity payment, a discount rate and a number of remaining payments.
In addition to requiring cost disclosure, Florida’s structure settlement protection act also requires the sale of a structured settlement to be approved by a court. In order to get approval, the court must find that the sale will benefit the payee and/or their dependents in a way that won’t lead to undue financial hardship in the future.
The sale of your settlement should be reviewed by an attorney, especially if the settlement is being split between you and your spouse in a divorce. Your attorney may even be able to use the sale of your settlement to help you win your case.
Regardless of the legal merits of a structured settlement sale, you should be wary of unscrupulous sellers. There are many schemes out there that rely on a person’s desire to sell their structure settlement in exchange for pennies on the dollar.
One of the most dangerous scams involves using an annuity contract to purchase a lump sum. It is often referred to as a commutation rider. A commutation rider commutes any remaining guaranteed structured settlement payments to a lump sum upon the death of the insured.
However, this is not necessarily a viable option in every circumstance. For instance, some individuals may need the liquidity a structured settlement commutation rider provides in order to pay estate taxes or to meet their needs as a beneficiary of a special needs trust (e.g., Medicaid approval).
If you are looking to sell your structured settlement payments, be sure to read your state laws carefully before you sign anything. You should also consider how long you have to cancel the sale. This varies by state and will depend on the type of transaction you’re dealing with.
Approval of Transfers
A transfer of structured settlement payments, known as a “payment sale,” can only occur if the court approves it. The approval process is designed to protect the long-term financial interests of people who have received structured settlements. The court must determine that the proposed transfer is in the best interest of the payee and his or her dependents and will not result in undue financial hardship.
The act also requires that the person selling the payment rights be licensed and registered with the Secretary of State. This is intended to help prevent the rise of “factoring” fraud in which unscrupulous companies purchase and sell structured settlement payment rights.
It is a good idea for consumers to receive independent professional advice before agreeing to transfer their structured settlement payment rights. This can be done by a lawyer, accountant or other professional who is not affiliated with the transferee and is not compensated by the transferee for the transaction.
When a court approves the sale of structured settlement payment rights, it must find that the transfer will serve the best interests of the consumer and any dependents who may be affected by the transaction. The court must also find that the transfer does not violate the terms of the consumer’s contract or the law of this State.
In addition, the court can appoint a guardian ad litem to review the requisite disclosures and make an independent inquiry into whether the proposed transfer is fair and reasonable. If the transfer is granted, the court can also award the guardian ad litem reasonable fees for representing the consumer.
The Florida Structured Settlement Protection Act is one of several state statutes that protect consumers from sales of their structured settlement payment rights. These laws are based on the Victims of Terrorism Tax Relief Act, which imposes a 40 percent tax on anyone who acquires structured settlement payment rights in a transaction that does not qualify for an exemption.
Exemption from Public Records/Annuity Contract Payees
The Florida Structured Settlement Protection Act (SSPA) protects those who receive structured settlements by requiring disclosure and court approval of any sale. This is a very important law for those who are interested in selling their settlement payments.
In addition to a requirement for cost disclosure and present value disclosure, SSPA also provides that a transfer of structured settlement payment rights can only be approved by the court after an objection has been filed. This is to prevent unscrupulous refinance companies from taking advantage of people who are seeking to sell their structured settlement payments.
Typically, transfers of structured settlement payment rights must be approved by the courts in order to obtain an exemption from income tax. However, there are certain circumstances that may allow a person to transfer their structured settlement payment rights without the need for court approval.
For example, an injured person who is receiving a structured settlement as part of a workers compensation claim is able to transfer their payment rights without having to pay the income tax. Additionally, if the payment rights represent damages for personal physical injury, the person is not required to pay income tax on these funds.
Another way that a person can transfer their payment rights is to use a commutation rider. This is a type of annuity contract that is designed to commute remaining guaranteed payments to a lump sum upon death. It is very useful in situations where liquidity is needed to pay estate taxes or to qualify for Medicaid.
The SSPA also requires that a payee of a structured settlement give the annuity issuer and the annuity contract obligor prompt written notice when they die. This can be especially important if the payee is a minor and does not have the capacity to name a beneficiary or change the designation.
The SSPA also allows a person to transfer their structured settlement payment right into a special needs trust. This can be particularly useful if the person has special needs, and a special needs trust is the only way that they can qualify for Medicaid. It can also be an excellent way to preserve their structured settlement in case they have a serious illness or injury later in life.
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