Mixed Deck — All Structured Settlements Topics Flashcards
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Read the first 20 Mixed Deck — All Structured Settlements Topics flashcards as text
What does 'temporary total disability' (TTD) mean in a workers' compensation claim?
Answer: A temporary condition in which the worker cannot perform any work while recovering from the injury
TTD benefits replace a portion of wages during the period the worker is completely unable to work due to the injury but is expected to eventually recover.
The 'economic benefit doctrine' is relevant to structured settlement design because it:
Answer: Could cause the present value of future payments to be taxable if the claimant has a secured, vested economic interest
The economic benefit doctrine taxes a benefit when it is received, even if not yet paid; structured settlements use qualified assignments and unfunded promises to avoid triggering this doctrine.
What is a 'rated age' in the context of structured settlement annuities?
Answer: An older age assigned to a claimant based on medical impairment, reducing the cost of the annuity
A rated age is an actuarially assigned older age given to an impaired claimant, reflecting shorter life expectancy and lowering the annuity premium needed to fund a given payment stream.
Which type of damages in a structured settlement are generally NOT excluded from the claimant's taxable income?
Answer: Punitive damages
Punitive damages are included in gross income under IRC Section 104, even when arising from a physical injury case, because they are intended to punish the defendant rather than compensate the claimant.
Which of the following structured settlement features specifically prevents the claimant from triggering the constructive receipt doctrine?
Answer: The claimant's complete inability to accelerate, transfer, or borrow against the payment stream
Constructive receipt requires that the taxpayer have the right to demand funds; by permanently restricting the claimant's ability to accelerate or borrow against payments, structured settlements ensure the claimant never has constructive receipt.
What is a 'split-funded' structured settlement?
Answer: A settlement that uses both an annuity for future periodic payments and an immediate cash component
A split-funded settlement combines a lump-sum cash payment at closing with a structured annuity providing periodic payments, addressing both immediate and long-term needs.
What is 'yield' from the perspective of an investor purchasing securitized structured settlement payment rights?
Answer: The annualized return on the investment, based on the price paid for the payment rights relative to the cash flows received
An investor's yield is their internal rate of return: the annualized percentage return earned based on the purchase price and the timing of the cash flows received from the structured settlement payments.
What is a 'life-contingent' structured settlement payment?
Answer: A payment that is made only if the claimant is still alive
Life-contingent payments cease upon the claimant's death, so the payment obligation is contingent on the claimant remaining alive.
What must a structured settlement agreement include to preserve tax-free status under IRC §104(a)(2)?
Answer: Language clearly establishing that payments are on account of personal physical injury and are not acceleratable, transferable, or subject to the claimant's control
To maintain tax-free status, the agreement must restrict the claimant from accelerating, deferring, or transferring payments, ensuring the claimant has no constructive receipt of the funds.
Which of the following cases does NOT qualify for income-tax-free treatment under IRC §104(a)(2)?
Answer: Employment discrimination (non-physical) settlement
Only damages received on account of personal physical injuries or physical sickness are excluded under §104(a)(2); non-physical claims such as employment discrimination do not qualify.
Under IRC Section 5891, when a structured settlement factoring transaction occurs without proper court approval, what excise tax is imposed on the factoring company?
Answer: 40% of the factoring discount
IRC Section 5891 imposes a 40% excise tax on the factoring discount (the difference between the present value of future payments and the purchase price paid to the payee) when court approval is not obtained.
What is a 'settlement agreement' in the context of structured settlements?
Answer: The binding contract between the plaintiff and defendant that specifies the terms of the periodic payments
The settlement agreement is the master contract between plaintiff and defendant (and their insurers) that documents the payment terms, releases, and all conditions of the structured settlement.
What is the role of a structured settlement consultant or broker?
Answer: To design and negotiate the structured settlement payment plan on behalf of the plaintiff
A structured settlement consultant advises the plaintiff on payment design options and negotiates terms with the defendant and its insurer.
What is 'present value' as used by factoring companies when pricing a purchase of structured settlement payments?
Answer: The lump sum a factoring company will pay today, which equals the future payments discounted back at the factoring company's required rate of return
The factoring company calculates the present value of the payment stream at its own discount rate (profit margin included) to arrive at the purchase price it will offer the payee.
What is the purpose of state insurance guaranty associations in the context of structured settlements?
Answer: To provide a safety net covering claimant payments if the issuing life insurer becomes insolvent
State life and health insurance guaranty associations protect claimants by covering periodic payments up to statutory limits if the issuing insurer becomes insolvent.
What is a 'compromise and release' (C&R) settlement in workers' compensation?
Answer: A final settlement agreement in which the worker accepts a lump sum (or structured payments) in exchange for releasing all future WC claims
A C&R is a final settlement that closes out all aspects of the WC claim — indemnity and medical — in exchange for an agreed amount, which can be structured as periodic payments.
What is a 'partial transfer' in structured settlement factoring?
Answer: A transaction in which the payee sells only some of the future payments (e.g., every other payment) while retaining others
A partial transfer allows a payee to sell a subset of future payments — such as a few years' worth or alternating payments — while retaining the remaining payment stream for ongoing income security.
What is 'subrogation' and how does it affect workers' compensation structured settlements?
Answer: The insurer's right to recover WC benefits paid from a responsible third party's settlement proceeds, which can reduce the net structured settlement amount available to the worker
When a third party (e.g., a negligent equipment manufacturer) is also responsible for the worker's injury, the WC insurer can assert a subrogation lien against any third-party recovery, reducing what remains for the structured settlement.
Which professional organization in the US primarily represents structured settlement industry professionals?
Answer: National Structured Settlements Trade Association (NSSTA)
The NSSTA is the primary trade organization representing consultants, life insurance companies, and other professionals involved in the structured settlement industry.
What is the 'anti-assignment' clause in a structured settlement agreement?
Answer: A clause prohibiting the claimant from transferring or assigning the right to receive periodic payments
The anti-assignment clause bars the claimant from voluntarily transferring payment rights, which is essential to maintaining the tax-free status of the payments under IRC §104(a)(2).