January 14, 2020 - In keeping with our commitment to provide you with "news you can use" in your personal and professional lives, we're pleased to announce a new structured settlement option now available to clients who structure their settlements.
Called the
Interest Rate Linked Structured Settlement (IRLSS), this option was created by American General Life for structured settlement-eligible clients who like the idea of deferring settlement proceeds on a tax-free basis but who may be reluctant to do so during what they perceive to be a low interest rate environment.
This option is also available for contingency fee-based attorneys who structure their taxable fees provided their client also structures a portion of their settlement. (NOTE: Pending the outcome of the PLR, this latter requirement may ultimately disappear)
Here's how IRLSS works:
- Client chooses a sum they wish to defer;
- This sum is used to purchase a structured settlement annuity which will yield a guaranteed single lump sum (principal plus interest) payable in 5, 10, 15 or 20 years;
- Depending on the direction of interest rates, the lump sum will either:
- Be paid as scheduled if the benchmark US Treasury rates are less than or equal to the rates in effect at time of purchase; or,
- It will convert to one of five predetermined payout schedules yielding guaranteed monthly income if the Treasury is greater at that time.
The conversion to guaranteed income is automatic if the qualifying trigger (the higher yield of the Treasury) occurs.
This
short video
does an excellent job describing how this option works.
BONUS:
While the PLR is pending, American General has agreed to provide a letter of indemnification upon request should any adverse tax consequences occur as a result of entering into an IRLSS.
Our View
While it remains to be seen what kind of demand exists for this new offering, it could present some clients with the opportunity to hedge their bets on the future with little downside risk given the current interest rate climate.
Given our (so far) accurate
2009 prediction that long term interest rates may not rise in a meaningful way until possibly 2041, this could be an excellent fit for someone who wants to plan for guaranteed cash flow in the future without being locked down to today's rates.
A couple immediate fits where we can imagine this working quite well:
- Someone with 5 to 20 years before they retire but who wish to receive guaranteed income to supplement Social Security and pension benefits at that time;
- Contingency fee-based attorneys in the same category as above;
- A couple who wishes to set aside some of their settlement funds to coincide with college years of their minor children;
- Someone looking to fill in the "bridge years" between early retirement and maximum Social Security.
It's worth emphasizing that the future direction of interest rates is anybody's guess. But as
our brochure on long term interest rates illustrates, long term interest rates above 6% have only occurred in about 24 out of the last 140 years.
Is It Worth Pursuing?
Like most things in life, the devil is in the details, so we recommend a comprehensive analysis before choosing an IRLSS.
Comparing the future lump sum as well as the potential for future monthly income from an IRLSS to a non-IRLSS future lump sum and comparable cash flows are prudent first steps before committing to anything.
Also, since structured settlements are voluntary agreements between the settling parties, the funding carrier or entity must agree to the use of American General Life as well as the use of the IRLSS option.
For now, we simply wanted to make our clients aware this option exists and are happy to provide quotes for cases where American General is a viable structured settlement option.
About American General Life
