You can hear the decades-old television jingle and see the motley crew of opera singers as clear as a bell: “I have a structured settlement and I need cash now.” For most readers, your knowledge of structured settlements stops there. But there is an entire industry that has existed in our country for many years where personal injury victims and wrongful death survivors who settled tort cases by way of “structured” settlement (as opposed to an all-at-once lump sum) have sold or assigned their future structured settlement payment rights to third-party purchasers, at high interest rates, for what can end up as mere pennies on the dollar.

Lesser known, perhaps, is that for explicit tax purposes, structured settlement annuities are not owned by the tort victims themselves, also known as the “payees.” The payees have a right to receive the structured settlement payments as they come due contractually, but they otherwise have no right to annuity ownership under the U.S. Tax Code. Rather, the contracts are, for the most part, subject to “qualified assignment,” and are owned and issued by top-rated insurance companies. These insurance companies have the obligation to make the payments, when due, by contract. No annuity contract provides that any payee has any right to assign, or “factor” their payments, yet payees do so by the tens of thousands each year. Although all 50 states now have their own version of a structured settlement protection act (SSPA) that functions as a consumer protection statute for payees, many factoring transactions are approved by courts without much inquiry. Indeed, most state legislatures have not revisited their SSPAs in decades, and many judges often feel as though it is the payee’s decision whether to take a financial haircut to get “cash now.” Judges have little guidance from their state lawmakers or common law as to what proper inquiry into a structured settlement transfer might even look like.