The Changing Landscape of Structured Settlements

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The Changing Landscape of Structured Settlements

Personal injury attorneys and claims adjusters have long been familiar with structured settlements and the spendthrift protection they provide to injured parties through guaranteed periodic payments designed to meet their future medical and financial needs. Structured settlements, traditionally funded by commercial annuities, thrived for decades relatively unchanged. But, one could argue that the 2008 economic downturn, which resulted in persistent low-interest rates, became the catalyst for the structured settlement industry to create an exciting variety of programs for attorneys and claimants that now offer increased flexibility and greater options for risk and return.

New Programs
The structured settlement industry is guided by two main Tax Codes: Sections 104(a) and 130: Section 104 describes the taxability of the case and Section 130 basically defines the assignment process and Qualified Funding asset, such as an annuity or U.S. Treasury. While annuities and U.S. Treasuries remain the preferred funding vehicles for structured settlements due to safety of principal and for providing guaranteed growth, Millennium Settlements and its IFS-affiliate companies now offer a  variety of programs to meet the needs of claimants or attorneys who want a more diversified approach to settlement planning.

Fixed-Indexed Annuities are suitable for claimants or attorneys who need the certainty of guaranteed payments, but who also want a degree of market-related returns. Fixed-Indexed Annuities represent a balanced and reliable settlement solution. They protect against loss of principal while yielding returns related to a specified equity index, such as the S&P 500. Because Fixed-Indexed Annuities guarantee at least a minimum return (a “floor”), they may also work for minors and for cases involving conservatorships. They enjoy the same tax status as traditional annuities: tax-free growth for physical
injury cases and tax-deferred growth for taxable settlements and attorney fees.

Settlements Plus™ is an exciting, new program that is suitable for claimants that can afford market-driven growth. Like a traditional annuity, claimants design a payment stream to meet his or her future needs, but the funds are managed professionally by either the claimant’s personal registered financial advisor or a financial institution. The program allows claimants to structure their settlement while having the funds placed in a professionally managed portfolio of mutual funds, index funds, or other market-correlated investments. The funds in the account grow and are distributed tax-free for physical
injury cases or tax-deferred for non-physical injury cases and allow for asset class diversification.

Fee Structure Plus® has been in existence for many years but has gained popularity among leading trial attorneys in the last few years. Attorneys who wish to defer their contingency-based fees and benefit from market-related returns often choose the Fee Structure Plus® program. Like Settlements Plus™ , attorneys can either have their personal Financial Advisor manage the funds according to the  Investment Policy Statement or work with a financial institution to manage the funds. Structures allow attorneys to defer and potentially lower taxes, save for retirement, provide for their children’s education, or simply ensure income regularity, given the uncertainty of contingency fee-based practice.

Benefits of Structured Settlements

The key benefit of structured settlements, whether funded by a traditional product or a market-based program, to claimants and attorneys from any type of legal settlement is tax efficiency—either a completely tax-free benefit for physical injury cases falling under Section 104(a) of the Tax Code, or tax deferral for most other types of legal settlements and for structured attorneys’ fees. In both instances, the tax benefit can be substantial for claimants or attorneys.

Structures can provide lifetime income for injured people, many of whom cannot afford any kind of financial risk or can be deferred up to 20 years if retirement income is the payee’s concern. The design of the future payment stream is extremely flexible and can truly be designed to meet a variety of future needs. For an attorney’s practice, the incorporation and utilization of structured settlements can help settle cases and make for satisfied clients, since structures can help the claimant focus on needs and their future security, which, in turn, will lead to future client referrals.

How to Choose Which Solution is Best

The combination of the traditional structured settlement annuity, fixed-indexed annuities and the market-based structured settlement programs for claimants and attorneys, allows for the much needed expansion of the structured settlement marketplace. Attorneys can now be confident that a solution exists for their clients that can truly meet their client’s (or their) future needs. Since every case and every claimant is unique, a variety of structured settlement programs can be incorporated into a settlement plan.

Attorneys should make an effort to make all of their clients aware of their one-time opportunity to receive tax-free or tax-deferred periodic payments in the form of guaranteed fixed income or market-based income payments. Contact your Millennium Consultant today to see how he or she can help you do just that.

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