Sell Structured Settlement Cheat Sheet 2026

The 30 highest-yield Sell Structured Settlement facts, distilled from real exam questions. Print it, save it as a PDF, or study it here — free, no sign-up.

1. A structured settlement designed to compensate for lost wages — rather than physical injury — is treated how for federal income tax? → Taxable as ordinary income because lost wages are not excludible under Section 104(a)(2)
2. How are punitive damages received through a structured settlement typically treated for federal tax purposes? → Taxable as ordinary income because they are not received for physical injury
3. In a structured settlement, what is a 'lump-sum deferral'? → A single large payment scheduled at a future date within the payment stream
4. Can a payee who is dissatisfied with the court's denial of a transfer petition appeal the decision? → Yes — the payee may generally appeal to a higher state court
5. What is the 'discount rate' in the context of selling structured settlement payments? → The rate used to calculate the present value of future payments
6. If a payee sells structured settlement payments at a gain relative to the tax basis, what type of tax may apply? → Capital gains tax
7. The Periodic Payment Settlement Act of 1982 did which of the following? → Provided federal tax incentives encouraging the use of structured settlements
8. What is a structured settlement? → A series of periodic payments made to a plaintiff following a legal settlement
9. Which type of structured settlement payment is explicitly taxable regardless of whether it is paid periodically or in a lump sum? → Emotional distress damages unrelated to physical injury
10. What is the typical role of the annuity issuer during a structured settlement transfer process? → The annuity issuer must be notified and may provide acknowledgment of the transfer
11. How must the transfer agreement be written under most SSPAs to protect the seller? → In plain language that clearly explains all terms and the seller's rights
12. What is the tax treatment of attorney fees paid from a structured settlement lump sum in connection with the transfer? → Generally not deductible by the payee under current tax law for personal transactions
13. Which court typically has jurisdiction to approve a structured settlement transfer in the US? → State court in the payee's state of domicile or where the settlement was established
14. Which financial instrument is typically used to fund a structured settlement? → Annuity contract
15. What must a court find before approving a structured settlement transfer under most SSPAs? → That the transfer is in the best interest of the payee and their dependents
16. A seller signs a structured settlement transfer agreement but then changes their mind within the statutory period. What right do most SSPAs give the seller? → The right to rescind the agreement within a specified cooling-off period
17. After a court issues an order approving a structured settlement transfer, what is typically the next procedural step? → The order is served on the annuity issuer and obligor, who then redirect payments
18. What does it mean when a structured settlement includes a 'life contingent' payment? → Payments continue only as long as the payee is alive
19. Are the original structured settlement periodic payments received by a plaintiff for physical injury taxable under US federal law? → No, they are excluded from gross income under IRC Section 104(a)(2)
20. Why might a payee choose to sell only a portion of their structured settlement payments instead of the entire stream? → To preserve some long-term income while accessing immediate cash for a specific need
21. Which party in a structured settlement is the person entitled to receive the payments? → Payee
22. What is the typical role of a structured settlement broker? → They design and negotiate the payment structure on behalf of the plaintiff
23. What percentage of the total face value of payments do payees typically receive as a lump sum in a structured settlement transfer? → 40–70%
24. Which type of structured settlement payments CANNOT typically be sold or transferred? → Workers' compensation settlement payments in most states
25. Under IRC Section 5891, who bears the 40% excise tax when a structured settlement transfer lacks a qualifying court order? → The factoring company (the acquirer)
26. What financial concept explains why receiving money today is considered more valuable than receiving the same amount in the future? → Time value of money
27. What is meant by 'factoring' in the structured settlement industry? → The purchase of future payment rights at a discount in exchange for an immediate lump sum
28. If a structured settlement transfer receives a qualified court order, how does IRC Section 5891 treat the transaction? → The 40% excise tax does not apply to the transfer
29. What is 'structured settlement funding' sometimes used for by investors? → Purchasing pools of structured settlement payment rights as an asset class
30. Which consumer protection concern was the primary motivation behind the passage of SSPAs in most states? → Factoring companies charging unfair discount rates and providing insufficient disclosures