Structured Settlement FAQs
If you have questions about structured settlements, you’re not alone. Browse frequently asked questions below.
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Written By :
Catherine J. Byerly
Edited By :
Emily Miller
Financially Reviewed By :
Somer G. Anderson, Ph.D., CPA, CGMA®, CFE
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How to Cite Annuity.org's Article
APA Byerly, C. J. (2021, July 19). Structured Settlement FAQs. Annuity.org. Retrieved January 15, 2022, from https://www.annuity.org/structured-settlements/faqs/
MLA Byerly, Catherine J. "Structured Settlement FAQs." Annuity.org, 19 Jul 2021, https://www.annuity.org/structured-settlements/faqs/.
Chicago Byerly, Catherine J. "Structured Settlement FAQs." Annuity.org. Last modified July 19, 2021. https://www.annuity.org/structured-settlements/faqs/.
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Annuity.org has been providing reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities, structured settlements and financial literacy topics using plain, straightforward language.
We partner with CBC Settlement Funding, a market leader with over 15 years of experience in the settlement purchasing space. Our relationship with CBC allows us to facilitate the purchase of annuities and structured settlements from consumers who are looking to get a lump sum of cash immediately for their stream of monthly payments. When we produce legitimate inquiries, we get compensated, in turn, making Annuity.org stronger for our audience. Readers are in no way obligated to use our partners’ services to access Annuity.org resources for free.
CBC and Annuity.org share a common goal of educating consumers and helping them make the best possible decision with their money. CBC is a Better Business Bureau-accredited company with an A+ rating and a member of the National Association of Settlement Purchasers (NASP), a national trade association that promotes fair, competitive and transparent standards across the secondary market. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.
Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.
Our Partnerships, Vision and Goals
We partner with CBC Settlement Funding, a market leader with over 15 years of experience in the settlement purchasing space. Our relationship with CBC allows us to facilitate the purchase of annuities and structured settlements from consumers who are looking to get a lump sum of cash immediately for their stream of monthly payments. When we produce legitimate inquiries, we get compensated, in turn, making Annuity.org stronger for our audience. Readers are in no way obligated to use our partners’ services to access Annuity.org resources for free.
CBC and Annuity.org share a common goal of educating consumers and helping them make the best possible decision with their money. CBC is a Better Business Bureau-accredited company with an A+ rating and a member of the National Association of Settlement Purchasers (NASP), a national trade association that promotes fair, competitive and transparent standards across the secondary market. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.
Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.
Structured Settlements
Can a Structured Settlement Be Inherited?
Structured settlements are often paid through annuities that are held and administered by insurance companies.
Whether a structured settlement can be inherited depends on whether the annuity contract specifies 'life contingent payments' or 'guaranteed payments.'
• Life contingent payments last only as long as the person who was awarded the settlement is alive. If the person who was awarded the settlement dies, the insurance company does not send future payments to their beneficiaries.
• Guaranteed payments are disbursed according to the schedule in the annuity contract no matter what. The person who was awarded the settlement can designate a beneficiary to receive the payments if they die before the payout is finished.
If you are the named beneficiary of a loved one’s structured settlement, and they have passed away, you will have to submit a claim to the annuity issuer so the rest of the agreed payments can be disbursed to you. The money from a qualified structured settlement will continue to be exempt from income taxes even after it has been inherited. In addition, a structured settlement can have a 'commutation rider' included in its contract. This means when the settlement is inherited, all or some of the future payments are converted into a lump sum of cash for the beneficiary. A commutation rider can make inheritance much simpler. Without a commutation rider, a beneficiary has to go through the process of selling future payments in order to get cash sooner than scheduled.
Whether a structured settlement can be inherited depends on whether the annuity contract specifies 'life contingent payments' or 'guaranteed payments.'
• Life contingent payments last only as long as the person who was awarded the settlement is alive. If the person who was awarded the settlement dies, the insurance company does not send future payments to their beneficiaries.
• Guaranteed payments are disbursed according to the schedule in the annuity contract no matter what. The person who was awarded the settlement can designate a beneficiary to receive the payments if they die before the payout is finished.
If you are the named beneficiary of a loved one’s structured settlement, and they have passed away, you will have to submit a claim to the annuity issuer so the rest of the agreed payments can be disbursed to you. The money from a qualified structured settlement will continue to be exempt from income taxes even after it has been inherited. In addition, a structured settlement can have a 'commutation rider' included in its contract. This means when the settlement is inherited, all or some of the future payments are converted into a lump sum of cash for the beneficiary. A commutation rider can make inheritance much simpler. Without a commutation rider, a beneficiary has to go through the process of selling future payments in order to get cash sooner than scheduled.
What Happens to a Structured Settlement During Divorce?
How a structured settlement is handled during a divorce depends on the approach your state takes to asset division.
States divide assets according to either 'equitable distribution' or 'community property.'
• If you live in a state with equitable distribution, and you received the settlement before you were married, it is likely you will keep the settlement.
• According to community property, on the other hand, anything either spouse owned before and during the marriage is considered property of the union and can be subject to division.
In any state, the division of assets doesn’t mean the settlement check itself gets divided. Typically, the spouse who doesn’t keep the settlement will get a different asset to balance out the overall division of assets. If you have a settlement and are facing divorce, you may want to hire a lawyer or mediator with experience handling complex assets.
States divide assets according to either 'equitable distribution' or 'community property.'
• If you live in a state with equitable distribution, and you received the settlement before you were married, it is likely you will keep the settlement.
• According to community property, on the other hand, anything either spouse owned before and during the marriage is considered property of the union and can be subject to division.
In any state, the division of assets doesn’t mean the settlement check itself gets divided. Typically, the spouse who doesn’t keep the settlement will get a different asset to balance out the overall division of assets. If you have a settlement and are facing divorce, you may want to hire a lawyer or mediator with experience handling complex assets.
Do I Have to Sell All of My Payments?
No. There are several options when it comes to selling your structured settlement payments, including selling some of your payments or all of them. Each person’s situation is unique, and regardless of how much of your settlement you want to sell, a judge has to approve the sale. You should discuss your options with your accountant or attorney before choosing how much to sell.
Why Is Court Approval Necessary?
Before the industry was regulated, some factoring companies took advantage of people who were not informed of the nuances of selling their structured settlements. To prevent this from happening, the United States government passed several laws — such as the Federal Periodic Payment Settlement Act of 1982 —that mandate court approval for the sale process. Mandating court approval ensures the sale is in the consumer’s best interest and a factoring company is not taking advantage of the person’s ignorance.
Please seek the advice of a qualified professional before making financial decisions.
Last Modified: July 19, 2021
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Financially Reviewed By
Somer G. Anderson, Ph.D., CPA, CGMA®, CFE
Assistant Accounting Professor at Maryville University's Simon School of Business
