Frequently Asked Questions
What is a structured settlement?
A structured settlement is a customized, tax-free benefit payment plan designed to meet plaintiffs’ current and future financial needs with immunity to future stock and bond market performance.
Why were structured settlements created?
To help plaintiffs to retain their settlement. It’s important for plaintiffs to obtain a good recovery, but also to safeguard it from potential market swings, predatory service providers and sometimes even themselves.
What are some of the details I should know about structured settlements?
To guarantee tax-free status, the underlying lawsuit or claim must be one seeking damages for physical injury, physical sickness or wrongful death.
All tax-free structured settlements are compliant with Internal Revenue Code Section 104(a)(2) [or 104(a)(1)-Workers’ Comp structures] and Section 130(c) in cases involving a Qualified Assignment.
In contrast to authentic structured settlements, which provide a lifetime of benefits and cannot be outlived, are “130X Structured Settlements,” “Plaintiff Controlled Structured Settlements” or trust-based settlements. These are not compliant with the tax code and are offered based on hypothetical illustrations which assume a fictional rate of return. They also charge set-up fees and annual fees every year thereafter and may offer benefits that are not guaranteed.
Does the defendant pay the full cost at the time of settlement?
Yes. In structured settlements, the defendant pays 100% of its cost of settlement immediately and is completely released from the claims and causes of action asserted by the plaintiff.
The defendant pays the up-front cash portion of the settlement to plaintiff and plaintiff’s counsel for immediate deposit. The defendant’s cost of the future periodic payment portion of the settlement is also paid in full at the time of settlement by check or wire transfer directly to the life insurer who will issue the annuity used to provide the future periodic payments to the plaintiff.
Can you provide an example of how this works?
Yes. Let’s say the plaintiff and defendant agree to a structured settlement where the defendant’s total cost is $1,000,000 and half of that amount ($500,000) is paid in up-front cash and the other half ($500,000) is used to fund an annuity that will provide $750,000 in future periodic payments. The defendant will pay the entire $1,000,000 cost of settlement immediately. The parties will sign all required documents immediately. And the plaintiff will never have to deal with the defendant again. The Life Insurance Company issuing the annuity will then start making direct deposits (or it will send checks) directly to the plaintiff for the entire period of the scheduled FUTURE PERIODIC PAYMENTS.
Can structured settlements be used in Wrongful Conviction, wrongful incarceration and wrongful Imprisonment cases?
Yes. A tax-free structured settlement can be designed in any case that involves physical injury, physical sickness or wrongful death. In one specific case, a man suffered daily injuries and illnesses as a direct consequence of his wrongful conviction and wrongful imprisonment. Almost every day for nearly 23 years, he suffered physical injuries from bruising to stabbings, torn ligaments and cartilage. Some of his injuries required surgery. We helped him create a settlement that took care of both him and his family for the rest of his life and beyond. Click here to see this and other case studies.
Additionally, since the passage of IRC 139F tax free payouts can be designed which pay wrongfully convicted plaintiff's for the time spent in prison.
What is CCI’s role in structured settlements?
Structured settlements create the need for a specialist to help advocate for the client and facilitate the process. Creative Capital offers expertise and experience in law, insurance and valuation to achieve a successful resolution of every case.
Specifically, we review the plaintiff’s and defendant’s life care plans, factor in reasonable amounts for pain & suffering and provide an analysis of what the defendant’s true exposure will be if the case were to go to trial. We believe that all cases should be negotiated based on the defendant’s exposure, not the plaintiff’s needs. After the defendant has agreed to pay the true value on a case, we design a structured settlement to guarantee the plaintiff’s future needs will be satisfied.
Some of the nation’s top trial lawyers engage CCI to assist with educating the defendant, the mediator and the judge about the defendant’s exposure to help achieve appropriate settlements. In addition, Creative Capital never charges a fee for services.
For a complete list of CCI’s services, click here.
If Creative Capital doesn’t charge a fee for services, how does it get paid?
Creative Capital is paid a one-time commission by the life companies who issue annuities. The anti-rebating/anti-price discrimination statutes in almost every state mean that even if the life companies paid no commission, they would provide the same benefits to plainitff for the same cost. As a result, CCI truly represents a no cost item for all its services.
What is the advantage to choosing a structured settlement over a lump sum?
The biggest advantage is certainty. Most plaintiffs, particularly those with catastrophic injuries that keep them from achieving their full earning potential, need a settlement that is guaranteed to last a lifetime.
Another advantage is the tax savings. Under IRC Section 104(a)(2) and Section 130, all up-front cash payments and all Future Periodic Payments made to the plaintiff in bodily injury cases are excluded from any taxation, including any earnings on the amount put into the structure.
Payments made to the estate after the plaintiff's death, as well as payments made to beneficiaries, are also excludable from income tax.
Who is involved in the negotiation of a structured settlement?
There are a number of parties who work to facilitate a settlement, including the plaintiff’s attorney, the CCI structured settlement consultant and the defendant or casualty insurer's attorney. The Creative Capital representative will attend settlement conferences, mediation, court conferences and hearings to help settle the case.
At what point is the structured settlement negotiated?
Negotiations can be conducted before a case goes to trial, during trial, after trial or during an appeal. The early identification and settlement of cases works in the plaintiff’s favor, but also offers savings on defense costs to the defendant or carrier.
To ensure the plaintiff’s ability to secure a structured settlement, plaintiff’s counsel should reserve the right for it in writing.
For CCI’s suggested language as to what to put on the record to that, click here.
Is it ever too late to opt for a structured settlement?
Yes. Once the plaintiff has the unqualified right to receive the amount proposed for the structure it is too late to negotiate a tax-free structured settlement. However, if a “substantial limitation” exists which prevents plaintiff from immediate payment it may not be too late to structure. Example - when court approval is needed.
How do structured settlements compare with lump sum payouts in terms of yield and safety?
A lump sum payment invested in any non-speculative tax-free or taxable instrument generally cannot match the tax-free yield of structured settlements.
The tax-free government subsidized protection of structured payouts, together with the yield of annuities provided by financially secure life insurance companies make the periodic payment approach a superior settlement vehicle.
What are the components of a typical structured settlement?
Each case is individual, and each settlement is different. However, options frequently considered include:
Level payments made monthly or at other appropriate intervals
Payments that increase over a period of time
Payments with increases in level amounts or percentage increases
Payments guaranteed for life, or for a fixed period of years or both
Level payments supplemented by periodic payments of lump sums
Can structured settlements take inflation into consideration?
Yes. When negotiating a structured settlement, inflation is a key factor in determining the payout plan. Structures funded with annuities can be covered by an annually compounded inflation factor. As noted, an indexed settlement annuity is also available to assuage inflation concerns.
What is a "substandard" case and what is its impact on the cost/benefit of the structured settlement package?
A substandard case, also commonly called a “rated age” case, refers to a catastrophic injury and a shortened life expectancy for the plaintiff.
The potential of fewer annuity payments because of reduced life expectancy translates into greater benefits. Even if the plaintiff lives longer than the life company anticipates, payments will continue.
How is the safety of a structured settlement ensured?
Creative Capital will only use those life companies rated A, A+ or A++ by AM Best Company, an independent insurance appraisal firm. Creative Capital prefers the larger life companies with top ratings from Moody's, Standard & Poor's or Fitch.
What is a Qualified Assignment?
Under Section 130 of the IRC, the defendant or casualty company assigns its liability to make future payments to a "Qualified Assignee." Once this is done, the defendant and casualty company are out of the case with the same result as in a cash lump sum settlement. This is legally called a "novation".
The “Qualified Assignee” then purchases an annuity from its affiliated life insurance company as the assignee’s source of paying the plaintiff. The life insurance company sends all payments directly to plaintiff. Qualified Assignments are important because plaintiffs prefer the adversary relationship with the defendant and carrier to terminate at settlement. They also prefer to have ongoing financial relationships with life companies of their choosing. Finally, it is only when a qualified assignment is executed that plaintiff may have a security interest in the annuity pursuant to IRC 130(c).
Can the plaintiff be a secured creditor and have a lien on the Qualified Funding Asset?
Yes. Whenever a qualified assignment is executed pursuant to IRC Section 130(c).
Are structured settlements limited to cases involving physical injury or physical sickness?
No. Creative Capital (CCI) has handled many non-physical injury structured settlement cases over the years, such as employment cases, property damage, wrongful mortgage foreclosure, punitive damages, disability claims, workers' compensation, Long Shore Harbor Workers' Act (LSHWA) claims, landlord tenant disputes, business disputes, law firm break-ups, attorneys' fees and more. The important distinction is that to be tax-free, the underlying lawsuit or claim must be one seeking damages for physical injury, physical sickness, or wrongful death.
What is a Non-Qualified Assignment?
A Non-Qualified Assignment is a legal novation transferring the Future Periodic Payment Obligation from the defendant or its carrier to a third-party non-qualified assignee. Once that assignee accepts the assignment and assumes the future payment obligation, the defendant (and carrier) are fully and completely released from the future periodic payment obligation in exactly the same way as in a qualified case.
Why was the Non-Qualified Assignment developed?
It was developed to allow the parties to obtain closure in the same way as in physical injury cases.
The plaintiff is able to defer taxable compensation, sever all ties with the defendant, substitute a highly-rated financial institution for the defendant, obtain a negotiated benefit stream and settle more easily at a cost more likely to be acceptable to the defense because of the tax advantages to the plaintiff.
The defendant is able to write off the cost of settlement, close his or her file, not have to act as guarantor of a life company and cut all ties with the plaintiff.
May the plaintiff name specific individuals as beneficiaries and reserve the right to change the beneficiaries?
Yes. Private Letter Ruling (PLR No. 8426078) allows a plaintiff to name a natural person as beneficiary without adverse tax consequences. Revenue Ruling 79-220 allows tax-free structured settlement payments to continue to the plaintiff’s estate after a plaintiff’s death as well. Some plaintiffs, therefore, choose to designate individuals (spouse, children, etc.) as their beneficiaries while others name their estate as beneficiary and do their estate planning via a last will and testament.
Can any party or the casualty insurer receive part of the commission back from their structured settlement broker?
No, this is called a rebate. Most states prohibit rebating of commissions. Click here for CCI’s Certificate of Reliability and Assurances for details.
How can I obtain the protection of a CORA Certificate/Affidavit?
CCI is the only structured settlement firm offering a CORA Certificate/Affidavit in every case. If CCI is not the broker in your case, we encourage you to go to our CORA page to download the Certificate or Affidavit and print out a copy. Insist that the broker sign it, under oath, with all the applicable penalties for perjury. While most brokers will refuse to provide a CORA Affidavit, CCI will always provide it and will stand by its warranties and representations.
Is CORA important for defendants as well as for plaintiffs?
Click here to download CCI's "Special message from Creative Capital's General Counsel".
Can the Creative Capital Team assist in Medicare, Medicaid, ERISA and other lien matters, as well as MSA Allocations?
Yes. As an affiliate of Creative Capital, Precision Resolution offers comprehensive Medicare, Medicaid, ERISA and private insurer lien resolution services, as well as Medicare Set-Aside Allocation reports.
Precision Resolution is a lien resolution firm that was built by attorneys, for attorneys. For years, our partner has successfully reduced attorney exposure to compliance and lien issues while putting millions of dollars back into the pockets of plaintiffs through successful lien resolution.
What should I do when I have a case?
Insist on Creative Capital as your structured settlement consultant and contact us at 800-EASY-CCI (800-327-9224) or email us by