Structured settlement attorney: when you need one and what they do

There are two completely different moments when a structured settlement involves a lawyer, and they call for different work. The first is when the case settles, where the attorney's job is to get the payment structure written into the settlement documents correctly and in the right order. The second is when someone offers to buy those payments, where the statutes governing the sale expressly contemplate the payee getting independent professional advice before signing.

People searching for a structured settlement attorney are usually standing in the second moment. It helps to understand both, because the choices made in the first one determine what is possible in the second.

Two moments, two different jobs

At settlement, the attorney is the plaintiff's personal-injury lawyer, occasionally supported by a settlement-planning specialist. Their job is to secure the recovery and get its terms documented. They work with, but are not the same as, a structured settlement broker — a distinction covered in what a structured settlement broker does. The broker designs and places the annuity; the attorney negotiates and drafts.

At a proposed sale, the situation is different. The buyer has its own lawyers, and they are not yours. Their client is the transferee. The lawyer on your side, if you have one, is there to read the transfer agreement, price what you are giving up, and tell you plainly whether the deal is bad.

The two moments differ in one more respect that matters. At settlement you generally are not paying separately for the structuring advice. At a sale, you may be.

What the attorney does when the case settles

Most of the value here is invisible and time-sensitive. Once a claimant has an unrestricted right to the settlement money, the opportunity to structure it is largely gone — constructive receipt has occurred, and no amount of later paperwork undoes it. The structure has to be built into the settlement agreement before the right to payment vests.

Within that window, the settlement-stage work covers:

• Characterising the damages. What the money is compensating for determines its tax treatment, and the settlement agreement's allocation is respected only where it was negotiated at arm's length between adverse parties and is consistent with the pleadings. This is the subject of are lawsuit settlements taxable.
• Getting the periodic payment language right. The agreement has to establish the obligation to make future payments and must not give the claimant the ability to accelerate, defer, increase or decrease them.
• The qualified assignment. Handing the payment obligation to an assignment company requires documentation meeting IRC §130, which is what allows the arrangement to work without the assignee being taxed on the funds it receives. The mechanics are set out in qualified assignment structured settlements.
• Liens and subrogation. Medical, hospital, Medicaid, Medicare, workers' compensation and attorney liens attach to the recovery itself, and they are far easier to resolve at settlement than afterwards.
• Capacity and protective structures. Where the claimant is a minor or lacks capacity, court approval of the settlement is generally required and a trust may be appropriate — see structured settlements for minors and special needs trusts.
• The attorney's own fee. A contingent fee can itself be structured, which is a separate planning question covered in attorney fee structured settlements.

Independent professional advice: what the statutes contemplate

Every state has a Structured Settlement Protection Act, and while the details vary, most are built on the model act supported by the National Conference of Insurance Legislators. That model defines "independent professional advice" as advice of an attorney, certified public accountant, actuary or other licensed professional adviser. It is not limited to lawyers.

The model act builds this into two places in the process.

First, the disclosure statement. The transferee must give the payee a separate written disclosure not less than three days before the transfer agreement is signed, in bold type no smaller than 14 points, setting out the payments being transferred, their aggregate amount, their discounted present value calculated under federal annuity-valuation standards along with the Applicable Federal Rate used, the gross advance amount, an itemised list of transfer expenses, the net advance amount, any penalties for breach, the right to cancel not later than the third business day after signing, and the effective annual interest rate — expressed in a set form beginning "On the basis of the net amount that you will receive from us". The last required item is a statement that the payee has the right to seek and receive independent professional advice regarding the proposed transfer and should consider doing so before agreeing to transfer any payment rights.

Second, the court's findings. No transfer is effective unless approved in advance by a court order based on express findings that the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependants; that the transfer does not contravene any applicable statute or court order; and that the payee has been advised in writing by the transferee to seek independent professional advice and has either received such advice or knowingly waived in writing the opportunity to seek and receive it.

That last clause is the one to read twice. The advice is not universally mandatory under the model — a written waiver satisfies it. Some states have gone further and made the advice a hard requirement, or restricted who may provide it. This is genuinely state-specific, and your own state's act is the document that governs.

Note also that these protections are not yours to bargain away in the transfer agreement itself: the model act states in terms that its provisions may not be waived by any payee. The one waiver it does contemplate is the specific written waiver of the advice opportunity, made before the court.

Who pays for the advice

The model act treats attorneys' fees as "transfer expenses" — expenses required under the transfer agreement to be paid by the payee or deducted from the gross advance amount, alongside court filing fees, escrow fees, lien search fees and commissions. In other words, the default assumption is that these costs come out of your proceeds and must be itemised in the disclosure.

Several states have gone further in the payee's favour. California's act, for example, requires the transferee to advise the payee of the right to seek independent counsel and financial advice, and provides that if the payee retains counsel, a certified public accountant or an actuary in connection with the approval petition, the transferee pays those fees regardless of whether the transfer is approved. Some states also add conditions designed to keep the advice genuinely independent — that the adviser's compensation does not depend on whether the transfer happens, and that the adviser was not referred by the buyer.

The practical point: before you pay for advice out of pocket, check whether your state shifts that cost, and check the itemised transfer expenses in your disclosure statement to see what is already being deducted.

What happens at the hearing

The buyer files the application in the appropriate court and, under the model act, must serve notice on all interested parties not less than 20 days before the hearing. Interested parties include the payee, any irrevocably designated beneficiary, the annuity issuer, the structured settlement obligor and anyone else with continuing rights or obligations under the settlement. Each of them is entitled to support, oppose or otherwise respond, in person or by counsel.

The payee is generally expected to appear in person unless the court finds good cause to excuse it. Judges commonly ask why the money is needed, what alternatives were considered, what the household budget looks like and what happens after the lump sum is spent. This is not a formality — approval requires an affirmative best-interest finding, and applications do get denied.

The whole sequence, and the timeline it produces, is set out in the structured settlement transfer process, with the legal standard itself covered in the court approval process.

When hiring your own lawyer is worth it

Some situations make independent advice clearly worth its cost:

• The transfer is large, or covers a substantial share of your remaining payments
• The payments are life-contingent, which brings additional conditions and complicates valuation
• There have been prior transfers, or a prior application was denied
• You have dependants whose support the court will be weighing
• The stream funds a trust, or you receive means-tested benefits
• You do not understand the effective annual interest rate on the disclosure statement, or it looks high

That last one deserves emphasis. The single number that determines whether a deal is fair is the discount rate, and the disclosure statement is required to express it as an effective annual rate precisely so it can be compared across offers. If that figure surprises you, get advice before signing rather than after. The arithmetic is explained in the structured settlement discount rate, and you can sanity-check an offer with the structured settlement calculator.

What no attorney can do is change the underlying economics. A lump sum today will always be less than the face value of the payments given up, because it is discounted. A lawyer can tell you how much less, whether the terms are within the normal range, and whether the court is likely to approve. They cannot make a sale a good idea if it is not one. The wider decision is covered in selling your structured settlement.

Frequently asked questions

Do I need a lawyer to sell my structured settlement?

Not universally. Under the model act, the court must find you were advised in writing to seek independent professional advice and either received it or knowingly waived it in writing — so a waiver can satisfy the requirement. Some states are stricter. Check your own state's Structured Settlement Protection Act, and treat the requirement as a floor rather than a recommendation.

Who pays the attorney in a structured settlement transfer?

Under the model act, attorneys' fees are transfer expenses deducted from your proceeds and itemised in the disclosure statement. Some states, California among them, require the buyer to pay the fees of counsel or an accountant you retain in connection with the approval petition, whether or not the transfer is approved.

Does independent professional advice have to come from a lawyer?

No. The model act's definition covers an attorney, a certified public accountant, an actuary or another licensed professional adviser. For a question that is mainly about the discount rate and the household budget, an accountant may be the more useful choice; where the settlement documents or a trust are involved, a lawyer usually is.

Can the buyer choose my adviser for me?

That is exactly what several states prohibit. Provisions of this kind bar the adviser from being referred by the transferee or its agent — with a carve-out for a bar association referral service — and require that the adviser's compensation not depend on whether the transfer goes through. If a buyer offers to arrange your "independent" advice, that is a reason to look elsewhere for it.

This article is general education, not legal, tax or financial advice. Structured Settlement Protection Acts vary significantly by state and are amended from time to time; verify the current requirements in your own state and take advice on your own circumstances before acting.