Commutation Riders

Estate Taxes and Estate Planning Commutation Riders

Structured settlement annuities while income tax free are not free from estate taxes. The present value of the remaining guaranteed payments are includable in the estate for estate tax purposes. The estate taxes are due within nine months of death. How will the estate tax be paid if a structured settlement is established which provides only monthly income even after the plaintiff dies? Life insurance could be used except for the fact that most catastrophically injured victims are uninsurable due to their medical problems.

There is a solution to this problem and it is called an Estate Planning Commutation Rider. This rider provides that at death a certain percentage (up to 100%) of the remaining guaranteed structured settlement payments are commuted to a lump sum of cash. The rider can be added to any structured settlement annuity and is offered by all of the life insurance companies that provide structured settlements. There is no cost for this rider but it must be done at the time of settlement. The only thing that is required is that the settlement paperwork reflects that this rider is to be implemented at death.

The key issue is determining the commutation percentage. Your settlement planner should hire an accounting firm to determine the potential estate tax. The accountant should always be asked to determine the largest potential estate tax, which would occur if the plaintiff died in the first year of the annuity. That way you can commute enough of the annuity to cash to cover a worse case scenario. It certainly does no harm to commute too much. However, if too little is commuted that could cause an immense liquidity problem. Once you know the worse case scenario estate tax liability, you can then determine the commutation percentage.


"In my business as a plaintiff’s products liability lawyer, everything begins and ends with our clients. In our firm we never handle a significant case without the assistance of Synergy. Why? Very simple: we trust Synergy with our clients. Yes, Synergy only works with plaintiffs. And yes, they are highly technically proficient and know this business cold. But what makes them different from others is that they listen to our clients, make our clients comfortable with complex issues, and always put the interests of the client first. In my opinion, because of their unique ability to handle people with sincerity and compassion in their time of crisis, they stand head and shoulders above his competition."

Richard Newsome
Newsome Law Firm, Past President of Florida Justice Association

WordPress Image Lightbox