Written by Jovan Johnson, Esq., Structured Settlement & Annuity Specialist
Structured settlements are a common alternative to judgments in lawsuits and arbitration. While they may seem relatively simple to navigate at first glance, most states have their own rules and laws to regulate structured settlement plans – including New York. Here’s a look at how these plans are administered in the Empire State and how to address issues related to structured settlements.
What is a Structured Settlement?
A structured settlement is a set of tax-free payments made on a regular schedule following a lawsuit settlement. Although judgments in lawsuits can be substantial, parties can negotiate settlement agreements that typically terminate litigation and require defendants to pay plaintiffs a sum of money. While smaller amounts are typically paid in a lump sum, larger settlements can be divided and paid over a fixed period under a structured settlement plan. These payments are typically made through an annuity issuer, usually either an insurance or life insurance company.
Who Usually Benefits From Structured Settlement Plans?
Structured settlement plans benefit claimants and plaintiffs, who require or may benefit from cases involving:
- Personal injury
- Workers’ compensation
- Multiple parties, also known as a class action case
- Injuries involving multiple people
- Matters concerning minors
Because many of these cases involve long-term medical care, living expenses, and related costs, a structured settlement can provide claimants with consistent payouts throughout the plan’s duration. It’s also worth noting that the income from a structured settlement can be tax-free.
What Is A Qualified Settlement Fund?
A qualified settlement fund (QSF) is a legal mechanism for managing settlement proceedings. It serves as a temporary holding vehicle for settlement funds, which can be advantageous in cases involving multiple plaintiffs. A qualified settlement fund can ensure that the administration of a lawsuit settlement is conducted in an organized manner.
Are Structured Settlements The Same As Annuities?
Structured settlements and annuities are often confused because both involve a series of payments made to a beneficiary over a fixed period. It’s important to note that, although many structured settlements are annuities, most annuities aren’t structured settlements, and there are several key differences between the two.
- While structured settlements are payment alternatives for plaintiffs’ awards in court cases, annuities are financial instruments available to investors that convert lump sums into payments over a set period of time.
- Although anyone can purchase an annuity, structured settlements are only available to plaintiffs of a lawsuit, and the details of the settlement are determined through negotiation between a plaintiff and a defendant.
- Structured settlement income to a beneficiary in cases of personal injury, workers’ compensation, medical malpractice, and wrongful death is usually income tax-free. The tax status of an annuity payment is variable, dependent on its purpose and use by the purchaser.
Is Selling A Structured Settlement Okay?
Although a structured settlement plan provides consistent payments over time, some plaintiffs need funds for immediate expenses, and they can opt to sell their structured settlement plan. Although plaintiffs who sell their structured settlements will receive a lump sum of money for said expenses, they’ll receive less money overall. It’s important to note that selling a structured settlement isn’t a short-term endeavor, and plaintiffs will have to go through several steps before they’re able to sell their plans for a lump sum.
Who Can I Sell My Structured Settlement To?
Structured settlements are typically sold to factoring companies, which give plaintiffs immediate cash for the right to collect future payments. Factoring companies usually don’t give plaintiffs the full value of their future payments, and they often apply a discount rate of 9% to 18%, which covers their profits, the time value of the money involved, and transaction rates. Several factors can affect the discount rate, including:
- Interest rates
- Current market rates
- Inflation and other economic conditions
- Service fees
Structured settlements can be sold in full, in part, or for a specific dollar amount, depending on the factoring company. Taxable structured settlement sales aren’t common, but anyone looking to sell a structured settlement plan should review the terms of their contract to ensure the terms of their sale, as there are certain cases where taxes would apply to the sale of a structured settlement.
What Determines The Offer I Receive From A Factoring Company?
There are several factors that can affect the offer a plaintiff receives when looking to sell a structured settlement. The discount rate can be a major factor in how factoring companies determine the dollar amount for a settlement plan. Payment timing can also affect the rate offered for a plan. Various other factors, including legal costs and state requirements, could be factored into the sale price.
How Do I Sell My Structured Settlement?
There are a few important steps to follow when selling a structured settlement:
- Plaintiffs looking to sell their structured settlement should get quotes from several factoring companies before picking one.
- Plaintiffs must obtain court approval to sell their structured settlement. Judges will decide if the sale is in the seller’s or their dependents’ best interest.
- Sales typically take 45 to 60 days to complete.
What If I’m Trying To Sell A Minor’s Structured Settlement?
Cases involving minors can be difficult, as court approval is required to sell either all or part of a minor’s structured settlement. Parents or legal guardians must demonstrate to the court that there is an urgent need for cash and that selling the settlement would be better for the minor than receiving ongoing payments.
Are There Any Rules Specific To New York?
There are several state-specific rules that apply when a plaintiff is trying to sell a structured settlement plan in New York. The New York state government enacted the Structured Settlement Protection Act in 2002 to protect sellers from unfair treatment by buyers. There are several rules set out in the SSPA specific to the state:
- Sellers must be residents of New York or have had the structured settlement originally established in New York.
- Any transfer must be in the best interests of the payee, ensuring transfers don’t leave sellers in a negative financial position.
- Factoring companies must provide sellers with clear disclosures before finalizing an agreement. A disclosure statement has to be furnished by a transferee at least three days before a seller signs a contract.
- Sellers have to be notified about any fees, deductions, penalties, or commissions prior to the finalization of a sale. Any hidden administration costs aren’t allowed.
- Sellers must be notified about their right to obtain independent professional advice about the transaction.
- Any and all structured settlement payment transfers in the state of New York need court approval. Judges must determine whether a transfer is in the best interests of the payee.
- Transferees can’t maintain direct or indirect control over the independent professional advisor that their seller might consult.
Citations:
- https://www.nysenate.gov/legislation/laws/GOB/A5T17
- https://www.begleylawgroup.com/2024/12/qualified-settlement-funds-2/
- https://legal-explanations.com/blog/how-to-sell-your-structured-settlement-payments/
- https://legalclarity.org/structured-settlement-protection-act-in-new-york-key-rules/
- https://law.justia.com/codes/new-york/2006/general-obligations/idx_gob0a5t17.html
About the Author: Jovan Johnson, Esq. is a structured settlement & annuity specialist with 12 years of experience, based in California. He has also practiced as an attorney in consumer and small business bankruptcy and debt settlement. Annuity Freedom has been helping clients sell annuity payments since 2017.