Structured Settlements Settlement Planning and Needs Analysis 2

Question 1

What is a 'special needs trust' (SNT) and how does it interact with a structured settlement?

Accepted Answer

A trust that holds settlement funds for a disabled claimant without disqualifying them from needs-based government benefits like Medicaid or SSI

Answer

An SNT (also called a supplemental needs trust) allows a disabled claimant to receive settlement funds without losing eligibility for Medicaid, SSI, or other needs-based programs that have asset limits.

Question 2

What is a 'structured attorney fee'?

Accepted Answer

An arrangement in which a plaintiff's attorney defers receipt of their contingency fee by having it paid as periodic structured payments, which may allow tax deferral

Answer

A structured attorney fee allows a plaintiff's attorney to receive their contingency fee as periodic future payments rather than a lump sum, potentially deferring income tax on those amounts.

Question 3

What is a 'reversionary interest' from the defendant's perspective?

Accepted Answer

The defendant's right to receive back annuity funds not paid out because the claimant died before the end of a guaranteed period — if the settlement is structured that way

Answer

In a reversionary structure, if the claimant dies before all guaranteed payments are made, the remaining annuity value reverts to the defendant or its insurer rather than going to the claimant's estate.

Question 4

When is a 'lump-sum advance' or 'cash-now' component appropriate in a structured settlement design?

Accepted Answer

When the claimant has immediate financial needs such as medical bills, legal fees, or debt repayment that cannot wait for periodic payments

Answer

An upfront cash payment addresses immediate financial obligations, while the structured annuity provides long-term income security, making a combination approach often optimal.

Question 5

What is 'commutation' in the context of structured settlements?

Accepted Answer

The conversion of future periodic payment rights into an accelerated lump-sum payment, typically through a factoring transaction

Answer

Commutation refers to the process of converting (or buying out) the right to future periodic payments for an immediate lump sum, most commonly done through factoring companies with court approval.

Structured Settlements Practice Test

Structured Settlements Practice Test

Structured Settlements Settlement Planning and Needs Analysis 2