Every year, thousands of structured settlement payees participate in 5891 transactions, transferring payment rights to factoring companies. These companies use highly persuasive marketing tactics to lead payees, who are often no longer represented by professional advisors, to transfer payments to themselves, often offering inadequate compensation.
Generally, the structured settlement professionals, settlement planners and attorneys, who participated in the settlement, are not even aware of the impending 5891 transfers. So, this team of professionals, who collectively advised the payee on the original payout plan, is unable to assist the payee in finding a reasonable alternative or at least in making an educated decision. The life insurance companies continue making payments (to a different payee assuming a transfer occurs), but the original payee’s payment plan is never really secure when structured settlement payment rights can so easily be transferred to a third-party.
The sale of structured settlement payment rights is governed by Section 5891 of the U.S. Internal Revenue Code and Structured Settlement Protection Acts in 49 states. The purpose of these Acts is to protect recipients of structured settlements who are involved in the process of transferring their payment rights by imposing an onerous excise tax on the buyer of the payment rights unless a judge agrees that the proposed transfer is in the “best interest” of the payee and issues a Qualified Order approving the transfer.
The determination of what constitutes the “best interest” varies widely from courtroom to courtroom in the United States. One constant, however, is the requirement for the life insurance company to be a named party and served with any court filings pertaining to the transfer.