Legal Framework and Court Approval Flashcards
6 cards from real Structured Settlements practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Legal Framework and Court Approval flashcards as text
What is a 'qualified assignment' under IRC §130?
Answer: A transaction in which the defendant assigns its periodic payment obligation to a third party, allowing the defendant to exclude the assignment proceeds from income
Under IRC §130, a qualified assignment allows a defendant (or its liability insurer) to transfer the periodic payment obligation to a qualified assignee and exclude the consideration received from gross income.
For a workers' compensation structured settlement, which IRC section governs the tax exclusion?
Answer: IRC §104(a)(1)
Workers' compensation payments, including those structured as periodic payments, are excluded from gross income under IRC §104(a)(1), not §104(a)(2).
What is a 'structured settlement factoring transaction'?
Answer: A transaction in which a claimant sells some or all future structured settlement payment rights to a third party for a lump sum
A factoring transaction occurs when a payee sells the right to receive future structured settlement payments to a factoring company in exchange for an immediate (discounted) lump-sum payment.
Under IRC §130, the periodic payments in a qualified assignment must be 'fixed and determinable.' What does this mean?
Answer: The amount and timing of each payment must be ascertainable at the time the assignment is made
Fixed and determinable means the amount and timing of every future payment can be calculated at the time the assignment is executed, ensuring certainty for all parties.
Which court generally has jurisdiction to approve a structured settlement transfer in the US?
Answer: A court of competent jurisdiction in the state where the payee resides, as specified by the applicable SSPA
Most SSPAs confer jurisdiction on a court (typically a superior or circuit court) in the payee's state of residence at the time of the transfer application.
What is the primary purpose of requiring court approval for structured settlement transfers?
Answer: To protect vulnerable claimants from selling future income streams at exploitative discount rates
Court approval requirements were enacted to protect claimants — often injury victims — from factoring companies that might pressure them into selling long-term income at unfavorably high discount rates.