These FAQs have been compiled to answer basic questions about structured settlements frequently asked by attorneys. To use the accordion feature, simply click on the question and the the answer will appear.
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There are no costs to create a structured settlement to the plaintiff attorney or injured party. The insurance broker's commission to arrange and purchase the structured settlement annuity is paid by the life insurance company.
Structured settlement brokers are typically involved in initial and ongoing consultations with the attorney and injured party. They prepare annuity price-benefit analysis, create and review settlement documents, attend court hearings, arbitrations and settlement conferences and are responsible for issuing the annuity policy to the plaintiff.
Brokers can assess settlement offers during a mediation session for their current and long-term benefits of the plaintiff. Quality of life and life expectancy of the injured party is often dictated by the amount of the settlement. A settlement that enables a 20 year old with brain damage, for example, to hire a nurse for weekly visits will usually result in a longer life for the young man versus a smaller settlement that doesn’t make possible proper medical supervision. In a sense, the amount of the settlement dictates how long and what type of life the injured party will live.
For life expectancy tables for catastrophic injury cases go to: Life Expectancy Tables. (This file is a Microsoft PowerPoint file)
Annuities are guaranteed by the issuing life insurance company. Only those highly rated by the rating agencies (Moody’s, A.M. Best, Standard & Poor’s) are selected for structured settlement annuities. In California, companies offering structured settlements must be first approved by the California Department of Insurance. The department evaluates the insurance carrier’s solvency and whether the carrier complies with California regulations. Carriers are also subject to mandatory annual audits and other financial compliance requirements.
By regulation, all annuity reserves must have assets that are equal to or exceed the corresponding payment obligations. In addition, the assets supporting these reserves may not be removed from the insurance company. Reserve sufficiency is mandatory and is frequently monitored by state legislators and auditors. State insurance commissioners have developed these regulations to preserve the solvency of general accounts in which assets are held so that contractual obligations to policyholders are met. These general accounts support only the obligations of the insurance companies–and not the obligations of a parent company or other subsidiaries.
The types of cases that qualify for a structured settlement include personal injury, workers’ comp, employment and discrimination, molestation, Medicare, environmental and property loss. The types of cases in which structured settlements are allowed have grown substantially over the last five years. A structured settlement broker can provide the latest types of qualified injuries.
When most people hear “structured settlement,” they assume the dollar amount of the injury settlement is for hundreds of thousands of dollars or more. Surprisingly, that’s not always true. Over the past 20 years, more than 50 percent of the structured settlements facilitated were less than $50,000. Another approximately 17 percent were between $50,000 and $100,000. These figures are typical in most annuity firms.
Yes. Special Needs Trusts (SNTs) are often used together with structured settlements. When used in tandem, SNTs and structured settlements offer complimentary benefits that can enhance the quality of life for severely injured plaintiffs and their family. Structured settlements provide a steady stream of income to an injured party through an annuity purchased by a defendant. A SNT enables the disabled individual to retain Medicaid and SSI benefits (or become eligible for them if under age 65) and other medical care not covered by government assistance. Funds are also available for needs not covered by government programs including additional home care, companions, vehicles and in some cases, a residence.
When setting up a SNT/structured settlement, advisors must be cognizant of federal and state requirements and follow them properly so not to forfeit the client’s ability to access these government benefits. If estate planning documents are incorrectly drafted, the government may demand reimbursement of government payments prior to the injured party’s death.
Yes. Federal law permits a first party Special Needs Trusts (SNTs) to hold assets (such as structured settlements) of injured parties under age 65 while preserving their needs-based public benefits such as California’s Medi-Cal, Medicare and SSI. However, under federal law, individual Special Needs Trusts cannot be used by individuals age 65 and over without disqualifying the injured parties from receiving public benefits. A plaintiff who, for example, is eligible for Medi-Cal and receives a litigation recovery will lose Medi-Cal benefits until the litigation recovery is spent below $2,000 for an individual or $3,000 for a couple (the resource limits for Medi-Cal). Fortunately, a first party Pooled SNTs can overcome these disqualifying hurdles.
An injured party of any age or settlement amount can combine a Pooled SNT with structured settlement assets to preserve government benefits while receiving income for nonmedical needs. Pooled SNTs are a state approved master trust that is established and managed by a charity. Because they are created through a nonprofit entity, support a “pool” of individuals, not a single individual, and the settlement money remains in the trust and is not owned by the plaintiff until distributed, the income from these trusts is not counted against needs-based public benefits.
When the trust is terminated and the state lien has been paid, the remainder passes to heirs just as it would with an individual SNT. Because the Pooled SNT is a state approved master trust, the trust documents are created and provided within three business days.
While Pooled SNTs can be used for an individual of any age, this is the only type of special needs trust available to people age 65 or older.
Much like the SNT used to preserve a plaintiff’s eligibility for Medi-Cal, a Medicare Set Aside Arrangement (MSA) is used to preserve a plaintiff’s future eligibility for Medicare. When the plaintiff is receiving (or soon will receive) both Medi-Cal and Medicare, an MSA is placed inside a Pooled SNT but must be professionally administered.
Currently, only one California Pooled SNT has the ability to provide plaintiffs’ protection of their settlement recovery from both Medi-Cal and Medicare: the California Charities Pooled Trust (CPT) at www.snthelp.com.
Yes. Attorney fee structures can be done with injury and sickness cases that have unknown value at the inception and are paid upon settlement. Cases that are billed and paid hourly do not qualify if an attorney is a cash basis taxpayer, structuring the fee results in an annuity payable over a period of time. If properly executed and documented, the income is not taxable until received.
Yes. Several life insurance companies write attorney fee structured annuities for just about every type of non-qualified case–as long as the attorney fee agreement meets with the insurance company’s specific criteria. This means fees generated from class action settlements, cases involving environmental claims, construction defect, age, sex and employment discrimination, property damage, fraud and non-physical injury cases can all qualify for fee structuring.
Yes. “Factoring” companies buy structured settlements from injured parties. In return, they give the injured party a lump sum payout. However, factoring companies’ high fees and discounting practices often leave the injured party with only a small percentage of the original settlement and an insufficient lump sum that can be rapidly depleted. In 2009, a new California law (SB 510) was passed that gives consumers a better understanding of the costs associated with selling their structured settlements so they can make a more informed decision as to whether selling the annuity is worth the high costs and discounts that go with the sale.
For SB 510 text, visit this link.
