| |
Home >
Computer
>
Computer
>
The History of Structured Settlement Factoring Transactions
The History of Structured Settlement Factoring Transactions
Structured settlements for personal injury cases became popular in the 1980’s, after the U.S. Tax code was modified to provide favorable tax treatment to insurance companies offering periodic payments rather than a lump sum payment.
Cebu,
VT,
United States
(pr4links.com)
18/10/2010
"These consumer protection statutes have greatly decreased the number of unscrupulous transactions, and have made it much safer for an individual, when in need, to sell their structured settlement."
Structured settlements for personal injury cases became popular in the 1980’s, after the U.S. Tax code was modified to provide favorable tax treatment to insurance companies offering periodic payments rather than a lump sum payment. The tax modification also benefited people receiving structured settlements in 2 ways: 1) It provided a guaranteed source of periodic income and 2) provided that the interest earned on a structured settlement was tax free. If an individual took a lump sum on a settlement, taxes are incurred on interest earned.
In a structured settlement, the recipient receives periodic payments over a number of years, often 10 years or more. To fund these payments, the insurer purchases an annuity at a highly discounted rate. This is because the annuity will earn interest over the repayment period. Therefore, the insurer ended up paying less for the settlement, received tax advantages, and the recipient wasn’t taxed on the payments made.
As more and more recipients of structured settlements needed immediate cash, companies began to purchase these settlements on a cash basis. Like annuities purchased by insurers, the financial companies would place a discount factor on the amount of the settlement payments. In other words, the cash payment to the recipient would not simply be the sum of all remaining payments.
Unfortunately, some companies took advantage of people, usually by providing too deep of a discount factor, or charging unnecessarily high fees. In response to these companies, many states adopted the Model State Structured Settlement Protection Act, created in 2000. The act provides for full disclosure among factoring companies to recipients, prior judicial approval of a sale of a structured settlement, and disclosure of all fees to be charged in the event of breach.
In addition, Congress passed Internal Revenue Code Section 5891 in 2002. The section places a punitive excise tax on those companies who purchase structured settlements without court approval, or those deemed on in the best interest of the seller.
These consumer protection statutes have greatly decreased the number of unscrupulous transactions, and have made it much safer for an individual, when in need, to sell their structured settlement.
About
Enter the primary company information here. More company profiles can be added after the registration
|