Structured Settlements Legal Framework and Court Approval

Question 1

What is the Structured Settlement Protection Act (SSPA)?

Accepted Answer

State laws requiring court approval before a claimant can transfer structured settlement payment rights to a factoring company

Answer

SSPAs are state statutes (enacted in all 50 states and DC) that require judicial approval of any transfer of structured settlement payment rights to protect claimants from unfair factoring transactions.

Question 2

What standard must a court apply when approving a structured settlement transfer under most state SSPAs?

Accepted Answer

The transfer must be in the best interest of the payee, considering the welfare of dependents

Answer

State SSPAs require courts to find that the transfer is in the best interest of the structured settlement payee, taking into account the payee's financial needs and the welfare of any dependents.

Question 3

Under IRC §5891, what federal excise tax is imposed on factoring companies that purchase structured settlement payment rights without court approval?

Accepted Answer

40%

Answer

IRC §5891 imposes a 40% excise tax on the factoring discount amount for any transfer of structured settlement payment rights that does not comply with the applicable state SSPA and obtain court approval.

Question 4

Which of the following is required to be disclosed to a structured settlement payee before a transfer agreement is signed under most SSPAs?

Accepted Answer

The discounted present value being offered and the effective discount rate (annual percentage rate)

Answer

State SSPAs mandate pre-contract disclosures to the payee including the gross advance amount, the present value of payments being sold, and the effective annual discount rate so the payee understands the true cost.

Question 5

What is the typical waiting period required between the disclosure statement and the signing of a transfer agreement under SSPAs?

Accepted Answer

At least 3 days but commonly 3–10 business days depending on the state

Answer

Most SSPAs require a waiting period (often 3 business days, sometimes longer) between the mandatory disclosure and the payee signing the transfer agreement, allowing time for reflection and independent advice.

Structured Settlements Practice Test

Structured Settlements Practice Test

Structured Settlements Legal Framework and Court Approval