By Paul J. Lesti, CSSC, RSP, MSSC

There are reports that President Biden’s 2021 American Families Plan proposes to increase the marginal tax rate for capital gains to 39.6% for those earning more than $1 million.  This article will outline existing relevant taxes, exemptions and fees, and describes a solution using current tax laws.  Please note that this increased capital gain rate proposal is not a law and will likely change before being finalized.

In Langkamp v. U.S. the United States Court of Appeals reversed and remanded the United States Court of Federal Claims’ decision that the U.S. had no continuing liability for future structured settlement payments.

Due to financial difficulties of the annuity issuer, the plaintiff suffered a shortfall of approximately 60% of the future structured settlement payments.  The lower court denied Langkamp’s claim for damages saying that the disbursement of funds and the purchase of the annuities was the only obligation of the U.S.  The U.S. Court of Appeals, however reversed this stating in part that, the STIPULATION FOR COMPROMISE SETTLEMENT says that the U.S. will pay “… the sum of $239,425.45 as an upfront payment…and a structured settlement for the benefit of Trevor Landkamp”.

This is an Installment Sale under Internal Revenue Code Section 453 that has been used for years.  Now, a new feature to this Installment Sale transaction allows the seller to receive the future payments guaranteed by a highly regulated trust company or a large life insurance company.  This is called a Structured Installment Sale or a Structured Sale.

A Structured Installment Sale allows the seller to avoid large tax increases, i.e. 15% to 20% for Federal capital gain taxes, 9.3% up to 13.3% for California capital gain taxes, and 3.8% for the Affordable Care Act.  Some taxpayers may even be subject to the Alternative Minimum Tax (AMT).

What you should know before giving up your Structured Settlement payments.

The context for this opinion was “whether an attorney representing a plaintiff in a personal injury matter under a contingency fee agreement may personally sign a settlement release containing a hold harmless and indemnification agreement in favor of the opposing party which would obligate the plaintiff’s attorney to indemnify and hold harmless the defendant for any future liability under the Medicare Secondary Payor Act …’MSPA’.”

Paraphrasing the opinion, it said that the Federal Government may recover past paid benefits and future medical expenses it may pay resulting from the injury to a plaintiff in some third party claims or litigation. Defendants and their insurance carriers must report to Medicare third party claims settlements. Damages may be recovered against the defense and plaintiff attorneys if the MSPA’s requirements are not followed.

Since a structured settlement annuity is the only investment that can provide safe, secure, income-tax free, management-free, payments that cannot be outlived, it is an investment vehicle that should be carefully considered in personal physical injury and wrongful death actions.

This fixed-income allocation is especially critical for catastrophically injured plaintiffs, minors, those who are now disabled or unemployable, and those without the training, experience, education and track record of investing large amounts of money to last a lifetime.

Frequently Asked Questions
March 2, 2009

• AIG announced a significant fourth-quarter loss and a restructuring of its organization. What can you tell me about this?
• What does the AIG restructuring mean to American General Life Companies?
• What can you tell me about the announcement that AIG will securitize part of the domestic life companies’ policies?
• Is my policy safe?
• Can you tell me more about how policies are protected?
• What are your current ratings?
• What do ratings mean?
• Someone has approached me about surrendering my American General Life Companies insurance policy or annuity contract. What should I do?
• Would the sale of one or more of the insurers of American General Life Companies impact policy holders?

The filing further states that CV Starr may engage in discussions or cooperate with management, the board of directors and other AIG shareholders, and or other relevant third parties.

The filing also allows Reporting Persons to sell or transfer common shares, enter into “public or private transactions” and use privately negotiated derivative transactions, and stock options to hedge the market risk of their stock positions.