A proposed bill would allow those who receive payments from a structured settlement to more easily transfer future payments in exchange for a lump sum.
Such transfers are allowed under federal law, but transactions are subject to a 40 percent excise tax. The only way to get around that is to have a state judge approve the transfer.
Forty-eight states have enacted related legislation since 2000, mainly based off a model law forwarded by the National Structural Settlements Trade Association and the National Association of Settlement Purchasers. Wisconsin is not one of them, though the proposal is largely based on that model.
State Rep. Jim Ott, R-Mequon, leads the committee working on the proposed bill, which also includes other legislators, attorneys and judges. As of Thursday, when the committee met at the Capitol, a draft of the proposed bill was being reviewed, though members decided that more changes needed to be made.
The committee will meet again Nov. 6.
Since other states started writing laws to facilitate the transfers, an industry of companies who buy the transfers has popped up. Often, a person receiving settlement payments will sell their future payments for a lower price, as advocates say a lump sum can help those who need money fast to pay a bill or for a medical need.
“It has really accelerated in the last 15 to 20 years,” Ott said. “It’s become more common.”
The transfers already happen in Wisconsin, committee member and attorney Liz Nevitt said. If the insurance company making the settlement payout is based in another state, a Wisconsin judge would follow the transfer law from there, she said.
This proposal seeks to codify the rules and bring some uniformity to what judges already are doing, Ott said.
Under Wisconsin’s proposal, the state judge who looks at the transfer will have to determine whether it is in the best interest of the seller to sell their structured settlement, and that they or their advocate knows the ramifications.
Still, it was clear from Thursday’s meeting that committee members felt the proposal needed some work. For example, as proposed, a judge would take a number of factors into consideration before signing off, including a seller’s unpaid taxes or child support.
But there was some concern that a judge would order part of a seller’s payment to automatically go to pay off their debts. Ott insisted the law would not give a judge that ability, but Nevitt was not convinced.
“Judges just do this on their own,” she said.
At Thursday’s meeting, lobbyists from the State Bar, structured settlement purchasers and insurance agencies were in attendance. Several told the committee they had an interest in the proposal.
Attorneys with the Wisconsin Legislative Council plan to study whether any new language is needed to deal with accounts set up for Medicaid or arrangements made to set aside money to pay for Medicare.
The proposal originated in the Wisconsin Judicial Council, Ott said, but it was sent over to his committee this summer.
After the committee finalizes its recommendations, it will be sent to the Joint Legislative Council. The council can then choose whether to accept the recommendations and put forth a bill during the next session, which begins in January.