Unraveling the Complex World of Structured Settlement Cash

A Comprehensive Guide to Understanding and Accessing Your Settlement Funds

Structured settlements are a common financial arrangement, often established after a legal dispute has been resolved. They provide a guaranteed, tax-free income stream for the injured party while offering the paying party flexibility in how they make the payments. In this article, we will delve into the intricacies of structured settlement cash, exploring the process of selling your future payments for a lump sum, the legal framework surrounding these transactions, and some notable court cases.

What is a Structured Settlement?

A structured settlement is a financial arrangement where the party responsible for paying damages (the defendant) agrees to make periodic payments to the injured party (the plaintiff) over a specified period. This arrangement is often facilitated through an annuity contract issued by a life insurance company. The payments can be tailored to the plaintiff's needs and may include immediate payments, deferred payments, or payments increasing over time.

Selling Your Structured Settlement for Cash

In some cases, recipients of structured settlements may decide they would rather have a lump sum of cash instead of periodic payments. This can be accomplished through a process called "factoring," in which a third-party company purchases the rights to future payments in exchange for an immediate lump sum.

Legal Framework for Structured Settlement Cash Transactions

Federal and state laws regulate the sale of structured settlement payment rights. The federal Tax Code, specifically 26 U.S.C. § 5891, imposes a tax penalty on transactions that do not adhere to certain guidelines. To avoid this penalty, the sale must be approved by a state court, which must find that the transaction is in the best interest of the seller and complies with any applicable state laws.

Many states have enacted Structured Settlement Protection Acts (SSPAs) to provide additional oversight and protection for sellers. These laws often require the seller to receive independent professional advice before entering into a factoring transaction.

Notable Court Cases Involving Structured Settlement Cash

1. Rapid Settlements, Ltd. v. Symetra Life Ins. Co., 567 F.3d 754 (5th Cir. 2009): In this case, the court held that a factoring company could not compel the annuity issuer to accelerate the payments, even though the structured settlement recipient had agreed to sell the future payments. The court determined that the acceleration would violate the terms of the annuity contract.

2. In re Structured Settlement Factoring Litigation, 2012 WL 2357765 (E.D. La. June 20, 2012): In this multidistrict litigation, the court found that factoring companies had engaged in deceptive practices by purchasing structured settlement payment rights without obtaining the required court approval. The court ruled that these transactions were void and ordered the companies to return the payments to the original recipients.

Conclusion:

Structured settlements offer a secure and tax-free income stream for those who have suffered personal injury or loss. However, sometimes circumstances change, and individuals may need access to a lump sum of cash. When considering selling your structured settlement payments, it's crucial to understand the legal framework and potential consequences. Always consult with a knowledgeable professional before making any decisions about your structured settlement.