Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies

42 Pages Posted: 19 Jun 2009 Last revised: 1 Jan 2010

Jeremy Babener

New York University School of Law

Date Written: December 31, 2009

Abstract

Structured settlements have been subsidized by federal, state, and local taxes for nearly three decades. The subsidy, which comes in the form of a tax exclusion that encourages personal injury claimants to forgo a lump sum settlement in favor of long-term periodic payments, is premised upon the belief that claimants prematurely dissipate lump sum settlements. This belief has long been held within the structured settlement industry, and is frequently cited as a proven fact. Anecdotal evidence from industry practitioners, representing a broad cross-section of interests, certainly suggests the belief to be true. However, this Note examines the available empirical data. It concludes that the danger of the dissipating claimant has yet to be proven, and that citations relied upon as evidence lack applicability, and sometimes substance. Therefore, this Note calls for a modern American study to ground the structured settlement subsidy in empirical and substantiated data.

Keywords: Structured Settlement, Personal Injury, Lump Sum, Dissipation, Squandering

JEL Classification: D10, E21, E65, G22, G23, G28, H24, H30, H50, H55

Suggested Citation

Babener, Jeremy, Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies (December 31, 2009). New York University Journal of Law and Business, Vol. 6, 2009. Available at SSRN: https://ssrn.com/abstract=1421601

Jeremy Babener (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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