Structured Settlements in the United States

The United States has enacted structured settlement laws and regulations at both the federal and state levels. Federal structured settlement laws include sections of the (federal) Internal Revenue Code.[5] State structured settlement laws include structured settlement protection statutes and periodic payment of judgment statutes. Forty-seven of the states have structured settlement protection acts created using a model promulgated by the National Conference of Insurance Legislations ("NCOIL"). Of the 47 states, 37 are based in whole or in part on the NCOIL model act. Medicaid and Medicare laws and regulations affect structured settlements. To preserve a claimant’s Medicare and Medicaid benefits, structured settlement payments may be incorporated into “Medicare Set Aside Arrangements” “Special Needs Trusts."

Structured settlements have been endorsed by many of the nation's largest disability rights organizations, including the American Association of People with Disabilities [6] and the National Organization on Disability.[7]
[edit] Definitions

A definition of “structured settlement” can be found in Internal Revenue Code Section 5891(c)(1) (26 U.S.C. § 5891(c)(1)), which states that a structured settlement is an "arrangement" that meets the following requirements:

    A structured settlement must be established by:
        A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. § 104(a)(2)); or
        An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. § 104(a)(1)); and
    The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C. § 130(c)(2))) and must be payable by a person who:
        Is a party to the suit or agreement or to a workers' compensation claim; or
        By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. § 130).

It is important to note that the language immediately prior to Internal Revenue Code Section 5891(c)(1) states that the definition that appears there is "for the purposes of this section". Internal Revenue Code Section 5891 entitled "Structured Settlement Factoring Transactions" deals with the excise tax imposed on the "factoring discount" (see IRC 5891(c)(4)), when there is a purchase of structured settlement payment rights and the exceptions to the excise tax. A number of structured settlement industry commentators have been observed attempting to broaden the express language that appears in the Internal Revenue Code.