The Law and Economics of the Secondary Market in Structured Settlements

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10 Responses

  1. Stephen Aslett says:

    It’s been written on. You just need to broaden your Westlaw queries. Here’s a sampling (all discuss J.G. Wentworth):

    Laura J. Koenig, Note, Lies, Damned Lies, and Statistics? Structured Settlements, Factoring, and the Federal Government, 82 Ind. L.J. 809 (2007).

    Adam F. Scales, Against Settlement Factoring? The Market in Tort Claims Has Arrived, 2002 Wis. L. Rev. 859 (2002).

    Julie Gannon Shoop, Selling Structured Settlements: Boon or Boondoggle for Injury Victims?, Trial, July 1999, at 12.

  2. John Darer says:

    I share your distaste for JGW commercials.

    I have written over 150 posts on the subject of factoring and its impact on tort victims at Structured Settlements 4Real located at http://structuredsettlements.typepad.com. There is far more to this than meets the eye, particularly structured settlement consultants,s ettlement planners and (if one factoring company’s advertising is to be believed) even personal injury lawyers, who are on the “structured settelment factoring vig” You have only scratched the surface. I’ve had the scuba gear on for a while now and you and your readers may find posts of interest.

    Former Indiana law school student’s Laura Koenig piece is poorly researched, hardly seminal and is overly reliant on material from Adam Scales which is also very poorly done. I did a 3 part review of it that points out the inaccuracies.

    Other sources of information:

    Beyond Structured Settlements

    http://s2kmblog.typepad.com and

    The Settlement Channel

    http://settlementchannel.squarespace.com

    If you need a resource consider me a volunteer

  3. John Darer says:

    I share your distaste for JGW commercials.

    I have written over 150 posts on the subject of factoring and its impact on tort victims at Structured Settlements 4Real located at http://structuredsettlements.typepad.com. There is far more to this than meets the eye, particularly structured settlement consultants,s ettlement planners and (if one factoring company’s advertising is to be believed) even personal injury lawyers, who are on the “structured settelment factoring vig” You have only scratched the surface. I’ve had the scuba gear on for a while now and you and your readers may find posts of interest.

    Former Indiana law school student’s Laura Koenig piece is poorly researched, hardly seminal and is overly reliant on material from Adam Scales which is also very poorly done. I did a 3 part review of it that points out the inaccuracies.

    Other sources of information:

    Beyond Structured Settlements

    http://s2kmblog.typepad.com and

    The Settlement Channel

    http://settlementchannel.squarespace.com

    If you need a resource consider me a volunteer

  4. On a side note, structured settlements are often used when a minor is injured – courts often want to see a third part trustee handling the investment and payouts to a minor instead of the parent, who might squander the lump some in a way that is not to the minor’s benefit.

  5. yclipse says:

    By definition, Wentworth would not be doing this if there weren’t a profit to made from it, and the profit has to come from the annuitant.

    I write only to point out that there is one more advantage to using structured settlements. Providing funds as a stream of income means that the recipient will not be able to blow it all within a couple of years of reaching the settlement, as many recipients of a lump sum have done.

  6. John Darer says:

    As a practical matter if a structured settlement is incorporated as a piece of a well formed settlement plan the need to factor should be mitigated. The attorney and settlement planner should be aware of all sources of income and expenses. Unless the plaintiff has sufficient liquidity independent of the settlement some cash should be set aside.

    In addition to structured settlements, for non Medicaid dependent minor plaintiffs, settlement management trusts can be used to provide spendthrift protection and provided Court approval is obtained, greater flexibility than a blocked account.

  7. I hate those commercials! I have watched a lot of TV the past few months with the baby (mostly TNT and USA for Law & Order reruns), and JGW is obviously targeting tort victims who are home during the day. I was mentioning these commercials to a colleague, who told me that when tort victims sell their structured settlement, the proceeds are taxable, even if the award was not.

  8. John Darer says:

    Christine, as much as I share your and your colleagues distaste for the commercials, provided the so-called “structured settlement factoring transaction” follows the guidelines of IRC 5891 and applicable state law there is a tax exclusion. If there is no “qualified order” then an excise tax of 40% is levied on the purchaser who presumably must pass on the expense to the seller in one form or another.

  9. Jeffrey,

    Many people feel the same way about those JGW commercials, not to mention that they are false advertising by saying “Get your money now”. The fact remains that this type of transaction needs to be approved by a local court system in order for the structured settlement factoring transaction to be completed.

    A judge has to make sure the transaction is in the best interest of the annuitant. This would include such things as employment, reason for selling, and discount rate of the transaction.

    As far as the discount rate of a transaction, this all depends upon how the settlement was structured. In your example you mentioned that the present value at settlement was $500k. In order to figure out how much the annuitant would receive if they decided to sell their structured settlement, one would need to know the insurance company and how the annuity was paid out.

    I created a structured settlement factoring discount rate calculator and present value calculator to help in these types of cases.

    Here is the link to the present value calc: http://www.structuredsettlement-quotes.com/fun/pv/

    Discount rates range from 8-12%.

    If you have any questions on the topic, please let me know.