William G. Schwab and Associates
811 Blakeslee Blvd. Dr. East (PA Route 443) PO Box 56 Lehighton, PA 18235
Tel 610-377-5200 Fax 610-377-5209
NEWSLETTER
Personal Injury January 29, 2015
 
Personal Injury
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Work-Related Injuries and Employer Liability

Workplace injuries are usually followed by a Workers' Compensation claim filed on behalf of the injured employee. However, in certain ...(more)

 

State Responsibility to Design and Maintain Safe Highways

Governments and government agencies are potentially liable for accidents caused, in whole or in part, by defects in highway design ...(more)

 

Strict Liability for Dangerous Animals and Ultrahazardous Activities

Typically, owners of dangerous animals and others engaged in ultrahazardous activities owe an absolute duty to make the animal or ...(more)

 

Increase in Distracted Driving

According to the National Highway Traffic Safety Administration, distracted driving accounted for nearly 6,000 deaths in the United States in ...(more)

 

Personal Injury Headlines

Illinois Teen Injured in Bike Wreck Awarded $910K

Personal-injury accident investigtion leads to multiple charges for Massena pair

Walmart removes personal injury lawsuit to federal court

Anderson Hospital denies allegations in personal injury lawsuit

$5 million personal injury lawsuit against city dismissed

Cashing Out a Structured Settlement


Many people enter into a "structured settlement" as a result of recovery on a legal claim, such as personal injury, medical malpractice, or workers' compensation.  A "structured settlement" takes a lump-sum award and turns it into a series of payments that may last for a specified period of time.  This is usually accomplished by the purchase of an "annuity contract."
 
Annuity contracts are commonly sold by certain insurance companies.  A lump-sum "premium" is paid for a guaranteed stream of future payments.  However, the recipient's circumstances can change, prompting some recipients to sell the rights to the periodic payments for immediate cash.
 
Sale of the Rights to Structured Settlement Payments
There are numerous entities willing to purchase a stream of payments, whether from a structured settlement or other source, such as lottery winnings. The process usually begins with calculation by the purchaser of the "net present value" of the settlement payments (NPV).  NPV is basically the current value of a future payment. For example, if a recipient is entitled to receive $100 ten years from now, that right is worth less than $100 right now, due to inflation and other factors.  By applying an accepted "discount" percentage rate, NPV can be calculated.
 
Purchase options may include:
  • Full purchase – the purchaser commonly calculates NPV of the payments and offers a lump sum, usually substantially less than the total initial amount or even the NPV
  • Purchase of a specific number of payments – only a specific number of the future payments are purchased at a discounted NPV rate
  • Purchase of a portion of each payment – the purchaser acquires only a right to a certain percentage of each payment, with the balance to the original recipient
Legal Procedures Necessary for Sale
Most states have laws that regulate the purchase of the right to structured settlement payments.  These laws commonly require, among other things, specific, written disclosures regarding the transaction, such as fees, commissions, and discount rates, and also require court approval prior to the actual sale. 
 
Federal Regulation of Structured Settlements Purchases
As part of the "Victims of Terrorism Relief Act of 2001," the United States Congress enacted a law applicable to the sale of structured settlements (the Act).  The Act requires that all sales, assignments, transfers, or encumbrances (i.e., borrowing money secured by the settlement payments) of structured settlements be approved by a state court.  The Act does not mandate the procedure, but requires states to evaluate whether the sale is in the best interests of the seller, taking into account the welfare and support of the seller's dependents, and violates no federal or state law or court order. 
 
Once the court has determined that the sale qualifies, it must issue a "qualified order" approving the transfer or sale. – In addition, a "model act" intended to regulate such sales, has been adopted by most states.
 
Effect of Failure to Comply With the Act
If the parties fail to obtain a "qualified order," the Act imposes on "any person who acquires directly or indirectly structured settlement payment rights in a structured settlement factoring transaction a tax equal to 40 percent of the factoring discount."  The "factoring discount" is an amount equal to the difference between:
  • The gross total, undiscounted sum of the payments purchased minus
  • The total amount actually paid by the purchaser

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