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

A trust that holds the annuity contract on behalf of the claimant

Answer

An IRS-approved vehicle for deferring taxes on structured settlement payments

Answer

A trust required by law for all minor claimants

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 fee paid by the claimant to the structured settlement consultant

Answer

A flat fee charged by the court for approving a structured settlement

Answer

An IRS-mandated fee schedule for structured settlement brokers

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

The defendant's right to recover payments if the claimant commits fraud

Answer

The defendant's ability to modify payment amounts after settlement

Answer

The right to revert to a lump-sum settlement if the annuity insurer fails

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

Never — all settlements should be fully structured

Answer

Only when the total settlement exceeds $1 million

Answer

Only in workers' compensation cases

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

The conversion of a taxable award into a tax-free structured payment

Answer

The annual adjustment of payments for cost of living

Answer

The transfer of annuity ownership to the claimant

Question 6

What is the primary risk to a claimant who sells all future structured settlement payments in a factoring transaction?

Accepted Answer

The claimant loses a guaranteed, tax-free income stream and may face financial hardship if the lump sum is spent quickly

Answer

The annuity insurer may become insolvent

Answer

The IRS will retroactively tax all prior payments received

Answer

The defendant may reclaim the original settlement amount