Sell Structured Settlement Knowledge Assessment — Questions and Answers

Question 1: What typical discount rate range do factoring companies apply when purchasing structured settlement payments?

0–3%
9–18% (Correct answer)
25–40%
3–8%

Correct answer: 9–18%

Factoring companies commonly apply discount rates in the range of 9–18%, though rates can be higher, representing the buyer's profit margin on the transaction.

Question 2: Which of the following reasons for needing funds is most likely to be viewed favorably by a court reviewing a transfer petition?

Purchasing a vacation home
Paying for discretionary luxury items
Funding a speculative investment
Covering necessary medical expenses or paying off high-interest debt that threatens financial stability (Correct answer)

Correct answer: Covering necessary medical expenses or paying off high-interest debt that threatens financial stability

Courts are most favorable toward transfers where proceeds address genuine financial hardship, such as medical bills, housing needs, or eliminating high-interest debt.

Question 3: Why might a payee with life-contingent payments receive a lower offer than one with guaranteed payments?

Guaranteed payments are taxable, reducing their value
Life-contingent payments carry mortality risk — they end if the payee dies, making them less certain for the buyer (Correct answer)
Life-contingent payments are worth more to investors
There is no difference in valuation between the two types

Correct answer: Life-contingent payments carry mortality risk — they end if the payee dies, making them less certain for the buyer

Life-contingent payments stop at the payee's death, creating uncertainty about the total amount the buyer will receive, which increases risk and reduces the offer price.

Question 4: What is the 'best interest' standard that a judge applies when reviewing a structured settlement transfer petition?

Whether the transaction complies with IRS rules only
Whether the transfer serves the financial well-being of the payee and any dependents, considering the payee's circumstances and needs (Correct answer)
Whether the transfer maximizes the factoring company's return
Whether the annuity issuer consents to the transfer

Correct answer: Whether the transfer serves the financial well-being of the payee and any dependents, considering the payee's circumstances and needs

Judges weigh the payee's financial situation, the purpose of the funds, the needs of dependents, and the fairness of the discount rate to determine if the transfer is in the payee's best interest.

Question 5: What is a 'qualified assignment' in the context of structured settlements?

The payee selling payments to a factoring company
A tax-free mechanism where the defendant assigns the payment obligation to a third-party assignee company (Correct answer)
A court order approving the original settlement
A broker certification credential

Correct answer: A tax-free mechanism where the defendant assigns the payment obligation to a third-party assignee company

A qualified assignment under IRC Section 130 allows the defendant to transfer the periodic payment obligation to a third-party assignee (typically an insurance subsidiary) on a tax-free basis.

Question 6: How can a payee minimize potential adverse tax consequences when selling a portion of their structured settlement?

Consult a tax professional before agreeing to the sale to understand basis and reporting obligations (Correct answer)
Sell all payments at once to reduce the total number of transactions
Transfer the payments to a family member instead of selling
Request that the factoring company report the transaction as a gift

Correct answer: Consult a tax professional before agreeing to the sale to understand basis and reporting obligations

Pre-sale tax planning with a qualified professional allows the payee to understand their basis, potential taxable gain, and any impact on government benefit eligibility before committing.

Question 7: Which of the following is the most reliable way for a payee to find legitimate structured settlement buyers?

Responding to unsolicited phone calls offering to buy settlements
Accepting the first offer from any online advertisement
Researching NASP (National Association of Settlement Purchasers) member companies and comparing quotes (Correct answer)
Asking the annuity issuer to recommend a buyer

Correct answer: Researching NASP (National Association of Settlement Purchasers) member companies and comparing quotes

NASP member companies have agreed to ethical standards; researching and comparing multiple NASP members helps payees identify reputable buyers and competitive offers.

Question 8: Which of the following disclosures must factoring companies typically provide to sellers under state SSPAs?

The factoring company's credit rating
The present value of the payments being sold and the net amount offered (Correct answer)
The identity of all investors who will fund the purchase
The company's annual profit margins on similar deals

Correct answer: The present value of the payments being sold and the net amount offered

SSPAs require disclosure of the present value of the payments and the net advance the seller will receive, enabling the seller to understand what they are giving up.

Question 9: What tax reporting form does a factoring company use to report a structured settlement transfer payment to the IRS?

Form W-2
Form K-1
Form 1099 (typically 1099-MISC or 1099-OTHER) (Correct answer)
Form 1065

Correct answer: Form 1099 (typically 1099-MISC or 1099-OTHER)

Factoring companies typically issue a Form 1099 to report the lump-sum payment made to a payee in a structured settlement transfer, reflecting it as potentially taxable income.

Question 10: Which entity issues the annuity contract underlying most structured settlements?

US Treasury
Securities brokerage
Federal Reserve Bank
Life insurance company (Correct answer)

Correct answer: Life insurance company

Life insurance companies are the issuers of annuity contracts that back structured settlements, and they must meet state insurance regulatory requirements.

Question 11: Under federal law (IRC Section 104), how are structured settlement payments treated for the original injured payee?

Taxable only to the extent payments exceed the original settlement principal
Excluded from gross income and therefore tax-exempt (Correct answer)
Subject to capital gains tax when the payment rights are transferred
Taxable as ordinary income in the year each payment is received

Correct answer: Excluded from gross income and therefore tax-exempt

IRC Section 104 excludes structured settlement payments from the gross income of the original injured payee, preserving the full intended value of the personal injury compensation.

Question 12: What does an 'independent professional advice' requirement in an SSPA obligate the payee to do?

Obtain advice from an independent attorney, financial advisor, or accountant before completing the transfer (Correct answer)
Attend a state-run financial education class
Use a court-appointed guardian ad litem
Hire a financial planner paid for by the factoring company

Correct answer: Obtain advice from an independent attorney, financial advisor, or accountant before completing the transfer

Several states' SSPAs require that the payee receive — or at minimum be offered — independent legal or financial advice before the transfer is executed.

Question 13: What information must be disclosed to the payee under most state Structured Settlement Protection Acts before a transfer can proceed?

The discount rate, fees, net payment amount, and total value of payments being sold (Correct answer)
The name of the annuity issuer only
Only the lump-sum amount to be paid
The payee's original injury details

Correct answer: The discount rate, fees, net payment amount, and total value of payments being sold

SSPAs require factoring companies to disclose the discount rate, all fees and expenses, the net lump sum the payee will receive, and the total dollar amount of payments being transferred.

Question 14: Who typically files the petition with the court to approve a structured settlement transfer?

The factoring company (or its attorney) on behalf of the transaction (Correct answer)
The payee independently
The annuity issuer
The original plaintiff's attorney

Correct answer: The factoring company (or its attorney) on behalf of the transaction

The factoring company typically bears responsibility for preparing and filing the transfer petition with the court and covering associated court costs.

Question 15: Which of the following is an example of a legitimate reason courts typically accept for approving a structured settlement transfer?

Gifting the lump sum to a third party
Funding a high-risk investment strategy
Purchasing non-essential luxury goods
Paying for necessary home repairs, medical procedures, or clearing high-interest consumer debt (Correct answer)

Correct answer: Paying for necessary home repairs, medical procedures, or clearing high-interest consumer debt

Courts consistently approve transfers that address genuine necessity — housing, health, or debt relief — where the sale proceeds improve the payee's real financial position.

Question 16: What is meant by 'factoring' in the structured settlement industry?

Breaking down the settlement payments into smaller equal parts
A mathematical formula for calculating settlement values
The process of auditing annuity issuer financials
The purchase of future payment rights at a discount in exchange for an immediate lump sum (Correct answer)

Correct answer: The purchase of future payment rights at a discount in exchange for an immediate lump sum

Factoring refers to the practice of purchasing future receivables — in this case structured settlement payments — at a discount to provide the seller with immediate liquidity.

Question 17: If a payee has minor dependents, how does this typically affect the court's review of a structured settlement transfer?

The court scrutinizes the transfer more carefully to ensure children's welfare is protected (Correct answer)
The transfer is automatically denied if there are minor children
The court requires the children to appear at the hearing
Minor dependents have no bearing on the transfer review

Correct answer: The court scrutinizes the transfer more carefully to ensure children's welfare is protected

When minor dependents are involved, courts apply heightened scrutiny because the structured settlement payments may be the primary financial support for the children.

Question 18: What is one way a payee can verify that a factoring company is licensed to operate in their state?

Ask the factoring company directly and trust their answer
Review the company's television advertisements
Confirm with the original plaintiff's attorney from the injury case
Check with the state's financial regulatory authority or department of financial institutions (Correct answer)

Correct answer: Check with the state's financial regulatory authority or department of financial institutions

State financial regulatory agencies maintain records of licensed structured settlement purchasing companies — checking directly with the regulator ensures the company is authorized to operate.

Question 19: What is a 'structured settlement annuity secondary market'?

The market in which factoring companies and investors trade previously issued structured settlement payment rights (Correct answer)
A government marketplace for structured settlement transfers
The original market where annuities are first sold to defendants
A stock exchange for annuity products

Correct answer: The market in which factoring companies and investors trade previously issued structured settlement payment rights

The secondary market consists of factoring companies and institutional buyers that purchase existing structured settlement payment rights from original payees, providing liquidity.

Question 20: A structured settlement with 'increasing payments' typically adjusts by what method?

A fixed percentage or cost-of-living index each year (Correct answer)
Random market-based increases
Quarterly stock market performance
Increases only when petitioned to a court

Correct answer: A fixed percentage or cost-of-living index each year

Increasing payment structures commonly apply a fixed annual percentage or tie adjustments to a cost-of-living index such as the CPI.

Question 21: Under a typical SSPA, the court approving a transfer must find that the transfer is:

Approved by the original defendant's insurer
Profitable for the factoring company
In the best interest of the payee, taking into account the welfare of dependents (Correct answer)
Consistent with IRS guidelines

Correct answer: In the best interest of the payee, taking into account the welfare of dependents

The 'best interest' standard is the central test courts apply under SSPAs — the judge must find the transfer serves the payee's and dependents' financial interests.

Question 22: Which professional is best qualified to advise a structured settlement payee on the potential tax consequences of selling their payments?

The annuity issuer's customer service department
The factoring company's sales representative
The court clerk
A licensed tax attorney or CPA familiar with structured settlement transactions (Correct answer)

Correct answer: A licensed tax attorney or CPA familiar with structured settlement transactions

A tax attorney or CPA with structured settlement experience can analyze the payee's specific situation and provide accurate advice on taxability, basis, and benefits implications.

Question 23: How does the remaining term of payments affect the lump-sum offer from a factoring company?

Longer remaining terms result in greater discounting because payments further in the future are worth less today (Correct answer)
Shorter remaining terms always result in lower offers
Remaining term has no effect on the offer
Longer remaining terms always result in higher offers

Correct answer: Longer remaining terms result in greater discounting because payments further in the future are worth less today

Payments that are further in the future are discounted more heavily because of compounding time value calculations, reducing the total present value.

Question 24: As of 2024, approximately how many US states have enacted their own Structured Settlement Protection Acts?

Nearly all 50 states (48+) (Correct answer)
About 25 states
Only federal law applies — no state laws exist
About 10 states

Correct answer: Nearly all 50 states (48+)

Nearly all US states (48 or more) have adopted SSPAs, creating a near-universal state-law framework requiring court approval for transfers.

Question 25: If a payee sells structured settlement payments at a gain relative to the tax basis, what type of tax may apply?

Capital gains tax (Correct answer)
Estate tax
Employment tax
Excise tax under Section 5891

Correct answer: Capital gains tax

If the IRS treats the sale of structured settlement payment rights as a capital asset transaction, any gain over the tax basis may be subject to capital gains tax.

Question 26: What is a 'rescission period' in a structured settlement purchase agreement?

A period during which the factoring company can cancel the deal
The period before the first payment under the annuity begins
The time the court takes to review the petition
A window of time during which the payee can cancel the agreement without penalty (Correct answer)

Correct answer: A window of time during which the payee can cancel the agreement without penalty

Many states require a rescission period — typically 3 business days or more — during which the payee may cancel the transfer agreement without any penalty.

Question 27: Which of the following would most likely cause a judge to deny a structured settlement transfer petition?

The payee is over age 65
The payee plans to invest the lump sum conservatively
The factoring company is headquartered in another state
The payee has no stated reason for needing the funds and the discount rate is 20% or higher (Correct answer)

Correct answer: The payee has no stated reason for needing the funds and the discount rate is 20% or higher

An extremely high discount rate combined with no compelling reason for the funds signals an exploitative transaction that does not meet the best interest standard.

Question 28: What is the tax basis of a structured settlement payee's payment rights for purposes of calculating gain on a sale?

The total present value of all future payments at the time of sale
The annuity purchase price paid by the defendant's insurer
The original settlement amount paid by the defendant
Zero, because the payments were received tax-free (Correct answer)

Correct answer: Zero, because the payments were received tax-free

Because the periodic payments are received tax-free under Section 104, the payee's tax basis in the payment rights is generally zero, meaning the entire lump sum from a sale may be a taxable gain.

Question 29: 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 (Correct answer)
Compensatory payments for physical injury
Lost future earnings resulting from physical disability
Medical expense reimbursements tied to physical injury

Correct answer: Emotional distress damages unrelated to physical injury

Damages for emotional distress not originating from physical injury are taxable as ordinary income because they don't meet the Section 104(a)(2) physical injury requirement.

Question 30: 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 (Correct answer)
Federal district court only
Any court in any state the payee chooses
The court that originally resolved the personal injury case only

Correct answer: State court in the payee's state of domicile or where the settlement was established

Transfers are approved by state courts — typically in the state where the payee resides — as each state's SSPA grants jurisdiction to its own courts.

Question 31: Which of the following best practices can help a payee maximize the lump sum received when selling structured settlement payments?

Sell all payments at once rather than partially
Accept the first offer received to avoid delays
Select the factoring company with the largest advertising budget
Obtain competing quotes from multiple factoring companies and negotiate the discount rate (Correct answer)

Correct answer: Obtain competing quotes from multiple factoring companies and negotiate the discount rate

Comparing multiple competing offers is the most effective way for payees to negotiate better discount rates and maximize the net lump sum they receive.

Question 32: Structured settlement payments for physical injury are exempt from federal income tax under which IRC section?

IRC Section 5891
IRC Section 104(a)(2) (Correct answer)
IRC Section 72
IRC Section 130

Correct answer: IRC Section 104(a)(2)

IRC Section 104(a)(2) specifically provides the income tax exclusion for amounts received through a lawsuit, settlement, or judgment on account of personal physical injury or physical sickness.

Question 33: If a structured settlement includes interest earned on delayed payments, how is that interest treated for federal taxes?

Taxable only if interest exceeds $1,500 per year
Tax-free under Section 104
Taxable as ordinary income because it represents investment return rather than injury compensation (Correct answer)
Tax-deferred until the final payment is received

Correct answer: Taxable as ordinary income because it represents investment return rather than injury compensation

Interest accrued within or on structured settlement payments is taxable as ordinary income because Section 104 only excludes the compensatory component, not investment earnings.

Question 34: After a court issues an order approving a structured settlement transfer, what is typically the next procedural step?

The payee must re-litigate the original injury case
The IRS must separately approve the transfer
The order is served on the annuity issuer and obligor, who then redirect payments (Correct answer)
The factoring company must register the order with FINRA

Correct answer: The order is served on the annuity issuer and obligor, who then redirect payments

Once the court order is entered, certified copies are sent to the annuity issuer and obligor directing them to redirect the sold payments to the factoring company.

Question 35: Which US state was among the first to enact a Structured Settlement Protection Act?

Texas (Correct answer)
California
New York
Florida

Correct answer: Texas

Texas enacted one of the early SSPAs in the late 1990s, and its model influenced many other states' structured settlement transfer laws.

Question 36: What financial concept explains why receiving money today is considered more valuable than receiving the same amount in the future?

Time value of money (Correct answer)
Liquidity preference theory
Compound interest effect only
Inflation risk premium

Correct answer: Time value of money

The time value of money principle holds that a dollar today can be invested to earn returns, making it worth more than a dollar received at a future date.

Question 37: What is the most common reason courts deny structured settlement transfer petitions?

The original settlement was for less than $50,000
The discount rate applied exceeds a set state maximum
The factoring company failed to register with the state insurance department
The transfer is not in the best interest of the payee (Correct answer)

Correct answer: The transfer is not in the best interest of the payee

Courts deny transfer petitions when they cannot affirmatively find that the transaction serves the payee's best interest, which is the central legal standard under most SSPAs.

Question 38: What is the primary financial risk to a payee who sells all of their structured settlement payments?

Owing money back to the defendant's insurer
Paying excess taxes on the lump sum
Losing a guaranteed, reliable long-term income stream that may have been essential for living expenses (Correct answer)
Losing the ability to file future lawsuits

Correct answer: Losing a guaranteed, reliable long-term income stream that may have been essential for living expenses

Selling all payments eliminates the stable, long-term income the settlement was designed to provide, which can leave the payee without financial support in the future.

Question 39: What information is typically included in a structured settlement transfer petition filed with the court?

Only the lump sum amount to be paid
The annuity issuer's investment portfolio
The full terms of the transfer, disclosure statement, payee's financial circumstances, and reason for needing funds (Correct answer)
The original injury settlement agreement only

Correct answer: The full terms of the transfer, disclosure statement, payee's financial circumstances, and reason for needing funds

A complete transfer petition includes the purchase agreement, required disclosures, financial details of the payee, the stated reason for needing the funds, and proof that notice was given to all parties.

Question 40: What role does the payee's attorney typically play in a structured settlement transfer proceeding?

The payee's attorney approves the discount rate used by the factoring company
The payee's attorney prepares and files all court documents on the payee's behalf
The payee's attorney independently advises the payee about the transaction's terms and implications (Correct answer)
The payee's attorney receives a percentage of the lump-sum payment

Correct answer: The payee's attorney independently advises the payee about the transaction's terms and implications

An independent attorney for the payee reviews the transfer terms, explains the consequences, and advises the payee on whether the deal is in their best interest — separate from the factoring company's legal team.

Question 41: How must the transfer agreement be written under most SSPAs to protect the seller?

In technical legal language to ensure maximum enforceability in court
In a federally standardized format approved by the Consumer Financial Protection Bureau
In plain language that clearly explains all terms and the seller's rights (Correct answer)
Only in the standard form language preferred by the factoring company

Correct answer: In plain language that clearly explains all terms and the seller's rights

Most SSPAs require transfer agreements to be written in plain language so sellers can readily understand the terms, their rights, and the full implications of what they are agreeing to.

Question 42: How does the financial strength rating of the annuity issuer affect the value of structured settlement payments in the secondary market?

It has no effect — all annuity issuers are federally guaranteed
Lower-rated issuers produce more valuable payment streams due to higher yields
Annuity issuer ratings only affect new settlement creation, not secondary market pricing
Higher-rated issuers produce payment streams valued more highly because there is less risk of default (Correct answer)

Correct answer: Higher-rated issuers produce payment streams valued more highly because there is less risk of default

The financial strength of the life insurance company issuing the annuity affects perceived credit risk; payments backed by highly rated insurers are considered safer and thus worth more.

Question 43: What is the consequence if a structured settlement transfer is completed WITHOUT a qualifying court order?

The factoring company owes a 40% federal excise tax under IRC Section 5891 (Correct answer)
The payee must return the lump sum immediately
The annuity issuer cancels all future payments
The transfer is valid but subject to a late fee

Correct answer: The factoring company owes a 40% federal excise tax under IRC Section 5891

IRC Section 5891 imposes a 40% excise tax on transfers that do not obtain a qualifying court order, effectively making non-court-approved transfers financially unviable.

Question 44: What does 'partial sale' mean in the context of structured settlements?

Selling payments from only one defendant
Transferring rights to a family member
Selling only some of the payments rather than the entire stream (Correct answer)
Splitting the settlement with a co-payee

Correct answer: Selling only some of the payments rather than the entire stream

A partial sale allows the payee to sell a portion of their future payments — for example, payments for the next five years — while retaining the remaining payments.

Question 45: After the court approves a structured settlement transfer, how long does it typically take for the payee to receive their lump sum?

Immediately at the hearing
One year after court approval
90 days after the hearing
Within a few days to a few weeks after the order is finalized (Correct answer)

Correct answer: Within a few days to a few weeks after the order is finalized

Once a court order is entered and any appeal period passes, the factoring company typically funds the lump sum within a few days to a few weeks.

Question 46: What is 'structured settlement funding' sometimes used for by investors?

Issuing new annuity products
Paying court filing fees on behalf of payees
Purchasing pools of structured settlement payment rights as an asset class (Correct answer)
Funding class-action lawsuits

Correct answer: Purchasing pools of structured settlement payment rights as an asset class

Institutional investors and hedge funds purchase pools of structured settlement payment rights as fixed-income investments, attracted by their predictable, tax-advantaged cash flows.

Question 47: Which financial metric allows a payee to compare the cost of selling structured settlement payments to taking out a traditional loan?

Gross discount percentage
Effective annual interest rate (EIR) (Correct answer)
Internal rate of return
Net present value

Correct answer: Effective annual interest rate (EIR)

The effective annual interest rate expresses the transaction cost as an annualized rate, making it directly comparable to loan interest rates.

Question 48: Does the sale of a structured settlement for a lump sum affect the payee's eligibility for means-tested government benefits such as Medicaid?

No, settlement proceeds are always exempt from Medicaid asset tests
Yes — receiving a large lump sum can disqualify a payee from Medicaid or SSI due to asset limits (Correct answer)
Only if the lump sum exceeds $1 million
No — federal law prohibits considering settlement proceeds as assets

Correct answer: Yes — receiving a large lump sum can disqualify a payee from Medicaid or SSI due to asset limits

A large lump sum from selling structured settlement payments can push a payee over asset thresholds for Medicaid, SSI, and other means-tested programs, potentially causing loss of benefits.

Question 49: Which parties are generally required to receive notice of a structured settlement transfer petition?

Only the payee
Only the factoring company and the court
The IRS and state tax authority only
The annuity issuer, obligor, and any other interested parties identified by the court (Correct answer)

Correct answer: The annuity issuer, obligor, and any other interested parties identified by the court

SSPAs require that the annuity issuer, the obligor (insurance company), and other interested parties receive formal notice of the transfer petition so they can appear and object if warranted.

Question 50: What must a factoring company provide to the payee at least 3 business days before the payee signs the purchase agreement under most SSPAs?

A copy of the annuity contract
A letter from the original judge who oversaw the injury case
A written disclosure statement showing the discount rate, fees, net payment, and total payment value being sold (Correct answer)
Proof of the factoring company's state license

Correct answer: A written disclosure statement showing the discount rate, fees, net payment, and total payment value being sold

SSPAs mandate that factoring companies deliver a written disclosure — often called the required disclosure statement — at least 3 business days before the payee executes the transfer agreement.

Question 51: What must a court find before approving a structured settlement transfer under most SSPAs?

That the annuity issuer has given written consent to the transfer
That the transfer financially benefits the factoring company's investors
That the original tort defendant has been personally notified
That the transfer is in the best interest of the payee and their dependents (Correct answer)

Correct answer: That the transfer is in the best interest of the payee and their dependents

Courts must affirmatively find that the transfer serves the payee's best interest, considering their financial situation and the welfare of any dependents before granting approval.

Question 52: What is the 'present value' of a structured settlement payment stream?

The current worth of future payments discounted at a given rate (Correct answer)
The amount the annuity issuer paid to fund the settlement
The total dollar amount of all future payments added together
The court-appraised value of the payments

Correct answer: The current worth of future payments discounted at a given rate

Present value is the current lump-sum equivalent of future payments, calculated by discounting each payment back to today's value using a specified discount rate.

Question 53: Which of the following best describes the role of the annuity issuer during a structured settlement transfer?

The annuity issuer has no involvement in the transfer process
The annuity issuer is notified and redirects payments to the factoring company after court approval (Correct answer)
The annuity issuer cancels the original annuity and issues a new one
The annuity issuer must approve and reissue the annuity to the buyer

Correct answer: The annuity issuer is notified and redirects payments to the factoring company after court approval

After a court order is issued, the annuity issuer (or its administrator) is notified and begins redirecting the specified payments to the factoring company.

Question 54: What are state-level laws governing the sale of structured settlement payments commonly called?

Structured Settlement Protection Acts (SSPAs) (Correct answer)
Consumer Finance Protection Statutes
Payment Rights Assignment Laws
Annuity Transfer Acts

Correct answer: Structured Settlement Protection Acts (SSPAs)

Virtually every US state has enacted a Structured Settlement Protection Act (SSPA) that sets out the requirements for a valid transfer of structured settlement payment rights.

Question 55: What is a 'qualified order' as defined under IRC Section 5891?

An approval order issued by a qualified financial institution that funds the purchase
An IRS determination letter confirming the tax treatment of the transfer
A rating issued by a qualified settlement fund administrator
A final court order or judgment approving the transfer of structured settlement payment rights that meets federal requirements (Correct answer)

Correct answer: A final court order or judgment approving the transfer of structured settlement payment rights that meets federal requirements

A qualified order under IRC Section 5891 is a final court order approving the structured settlement payment rights transfer that satisfies the federal requirements, thereby exempting the deal from the excise tax.

Question 56: How does inflation affect the real value of structured settlement payments over time for a payee who chooses NOT to sell?

Inflation increases the real purchasing power of fixed payments
Inflation has no effect on structured settlement payments
Inflation erodes the purchasing power of fixed payments that do not have cost-of-living adjustments (Correct answer)
Inflation causes structured settlements to be renegotiated automatically

Correct answer: Inflation erodes the purchasing power of fixed payments that do not have cost-of-living adjustments

Fixed structured settlement payments lose real purchasing power over time when inflation rises, unless the settlement includes a cost-of-living adjustment (COLA) provision.

Question 57: What does the term 'net lump sum' mean in a structured settlement transfer?

The before-tax value of the lump sum
The amount the annuity issuer returns to the factoring company
The total face value of all payments being sold
The lump sum the payee actually receives after all fees, commissions, and court costs are deducted (Correct answer)

Correct answer: The lump sum the payee actually receives after all fees, commissions, and court costs are deducted

The net lump sum is the actual cash the payee receives in hand after subtracting all fees, closing costs, and attorney fees from the gross present value the factoring company calculated.

Question 58: What financial planning alternative might be preferable to selling structured settlement payments for a payee who needs short-term cash?

Investing in high-risk stocks
Taking a secured personal loan or home equity loan at a lower effective cost (Correct answer)
Applying for government disability benefits
Purchasing additional annuities

Correct answer: Taking a secured personal loan or home equity loan at a lower effective cost

Because structured settlement discount rates (9–18%) often exceed traditional loan rates, a secured personal loan or home equity loan may provide needed cash at a lower true cost.

Question 59: Which factor does NOT typically affect the lump-sum amount a payee receives for their structured settlement?

The original defendant's name (Correct answer)
The remaining term of the payments
The dollar amount and frequency of payments
Current market interest rates

Correct answer: The original defendant's name

The defendant's identity has no bearing on the valuation — the lump-sum offer is driven by payment size, timing, duration, and the prevailing discount rate.

Question 60: Can a payee who is dissatisfied with the court's denial of a transfer petition appeal the decision?

No — the payee must wait 10 years before re-filing
Yes — but only to a federal court
Yes — the payee may generally appeal to a higher state court (Correct answer)
No — court denial of a transfer is final and cannot be appealed

Correct answer: Yes — the payee may generally appeal to a higher state court

A payee can appeal a denial through the normal state appellate process, though appeals are expensive and outcomes uncertain.

Sell Structured Settlement Knowledge Assessment

This assessment tests knowledge of the structured settlement selling (factoring) process, covering legal requirements, court approval under state Structured Settlement Protection Acts, financial considerations, buyer pricing and discount rates, and federal tax implications for payees transferring payment rights.

Questions

90 min

Time Limit

70%

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