What Happens to Your Structured Settlement When You Die?

What happens to your structured settlement when you die?

Planning for death is tough, especially when it comes to your personal finances. Discussions of who inherits what are tricky to navigate, and a lot of people will avoid having these difficult conversations altogether just to keep the peace.

 

But if you hold a structured settlement or annuity payment stream in your name, it’s in your loved ones' best interest for you to start thinking now about what will happen to your payments after you pass. When you address the issue head-on, you’re helping to protect their financial future.

Family across generations

Can your structured settlement payments be inherited?

 

If your settlement delineates a guaranteed minimum number of payments and you pass away before that minimum has been met, then your named beneficiary will receive the remainder of that guaranteed minimum.

 

If your structured settlement contains a commutation rider, then your named beneficiary will receive a discounted lump sum payment upon your death instead of a stream of payments over time.

 

Some structured settlements are life-contingent, meaning that your payments will only be disbursed while you are still alive. Because these payments will cease upon your death, they cannot be inherited by a beneficiary.

 

Who can inherit my payments?

 

When you’re deciding who will inherit your structured settlement funds after you die, you have a few options.

 

  • Primary beneficiary – This is the first person in line to inherit your settlement payments when you pass. You can have multiple primary beneficiaries, called co-beneficiaries, among whom you may divide the payments either equally or by percentage.
  • Secondary beneficiary – Also known as a contingent beneficiary, this is the person (or people) second in line to receive your settlement funds when you die. If the primary beneficiary dies before you do, the contingent beneficiaries will receive the payments.
  • Trusts – You can choose to name a trust as a primary beneficiary. In this case, you will create pre-defined rules for your trust, and the trustee will disburse payments based on those rules. Trust payments count as taxable income to the recipients.
  • Donations – You may wish to leave your remaining payments to a non-profit organization that accepts donations by naming them as a beneficiary.

You can name and/or change your beneficiary or beneficiaries at any time by contacting the insurance company that disburses your payments. In fact, many people choose to revisit who their beneficiaries are regularly, accounting for major life events like marriages, births, deaths, and so on.

 

What if I don't have a beneficiary?

 

If you do not name any beneficiaries to inherit your structured settlement payments, then your payments will be made to your estate. If one of your loved ones wishes to claim those payments after your death, the remaining value of the structured settlement must go through estate probate, meaning that any fees or charges on your estate could come out of the remaining settlement amount.

 

Because the probate process can be costly and complex, many people prefer simply naming a beneficiary by contacting the insurance company disbursing their payments. This is an effective way for you to clearly delineate who will receive your payments when you pass, which can help your loved ones avoid confusion and conflict.

 

What are my beneficiary’s payout options?

 

As noted above, the person who inherits your structured settlement payments may receive a lump sum at the time of your death if your settlement includes a commutation rider.

 

If you are married, your spouse can also opt to become the legal owner of your settlement payments through a process called spousal continuation. This option allows your lawful partner to continue receiving payments and retain their tax-free status.

 

It’s important to note that any beneficiary who inherits the rights to your structured settlement payments after you pass can sell part or all of the payment stream for a lump sum if they choose. Naming a beneficiary for your payments will allow them to either receive a steady income or cash out on the payments when they have an emergency.

Planning for your future payments

 

It’s important to note that not all structured settlements are the same, and rules around beneficiaries and inheriting assets can differ from state to state and settlement to settlement.

 

If you’re not sure about the best way to move forward, you may wish to contact a financial advisor and/or an estate planning attorney. A professional will be able to review the terms of your settlement and advise on the best way to legally protect your loved ones’ financial wellbeing after you die.

 

Consulting a lawyer

However, you may need access to a lump sum of cash now! If that’s the case, you always have the option of selling part or all of your payment stream for a lump sum.

 

If you have questions about how to sell your structured settlement payments or would like to hear a free quote, call JG Wentworth at (877) 227-4713.

 

 

Sources Cited

 

  1. Farber, P. (2018, January 23). Passing your structured settlement to a beneficiary – things to know. Casetext. Retrieved from https://casetext.com/analysis/passing-your-structured-settlement-to-a-beneficiary-things-to-know
  2. Stasha, S. (2021, June 19). What happens if one primary beneficiary dies: Policy advice. PolicyAdvice. Retrieved from https://policyadvice.net/insurance/guides/what-happens-if-beneficiary-dies-before-you/#:~:text=Can%20I%20Have%20Two%20Primary,based%20on%20a%20predetermined%20percentage.
  3. Plummer, S. (n.d.). Annuity death benefits for beneficiaries. The Annuity Expert. Retrieved from https://www.annuityexpertadvice.com/death-benefits-for-beneficiaries/
  4. Kagan, J. (2022, March 14). Probate. Investopedia. Retrieved from https://www.investopedia.com/terms/p/probate.asp
  5. Plummer, S. (n.d.). What is spousal continuation? The Annuity Expert. Retrieved from https://www.annuityexpertadvice.com/spousal-continuation/#:~:text=A%20spousal%20continuation%20is%20a,the%20contract%20remains%20in%20force.
  6. Structured settlements. Begley Law Group. (2016, January 27). Retrieved from https://www.begleylawgroup.com/2016/01/structured-settlements/
  7. Darer, J. (2018, May 25). What happens to an annuity when you die? Structured Settlements 4Real Blog. Retrieved from https://structuredsettlements.typepad.com/structured_settlements_4r/2018/05/what-happens-to-an-annuity-when-you-die.html

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