Naming a beneficiary — what happens to payments when you die

Here is the one genuine exception to the “you can’t transfer payments to another person” rule: the beneficiary designation.

Many structured settlement annuities — though not all — allow you to name a beneficiary who will receive any remaining guaranteed payments in the event of your death. This is not a sale. It is not a court-approved transfer. It is a contractual provision built into the annuity itself, and it represents the cleanest, most straightforward way to ensure your payments flow to someone else without any legal proceeding.

Life-contingent vs. guaranteed (period-certain) payments

The type of payments your settlement includes determines whether a beneficiary designation is even possible. Most structured settlements contain two types of payments:

• Life-contingent payments are paid only as long as you are alive. If you die before a life-contingent payment is scheduled, it simply stops. There is nothing left to pass to a beneficiary, because the annuity company’s obligation ended at death.

• Guaranteed (period-certain) payments are scheduled regardless of whether you survive. If your settlement guarantees payments for 20 years and you die in year 8, the remaining 12 years of payments would go to your designated beneficiary. These are the payments that a beneficiary designation actually affects.

Understanding which portion of your payments is life-contingent and which is guaranteed is essential before you decide anything. A financial advisor or your annuity company can walk you through the breakdown.

How to check or change your beneficiary designation

• Start with your original settlement documents and the annuity policy issued by the insurance company. If a beneficiary was named at the time of settlement, that designation should appear in the policy.

• To change it, contact the annuity issuer directly — the process is usually a straightforward form, though some insurers require notarization or specific documentation.

• It’s worth reviewing your beneficiary designation periodically, particularly after major life changes like marriage, divorce, the birth of a child, or the death of a previously named beneficiary. An outdated designation can send payments to someone you no longer intend to benefit — and that outcome can be difficult or impossible to reverse after the fact.

• This beneficiary path — designating someone to receive guaranteed remaining payments at your death — is the one mechanism that genuinely transfers payments “to someone else” without a sale. If this option exists in your annuity, it may be exactly what you’re looking for.

Selling your structured settlement (the most common route)

For people who want cash now — whether to give to a family member, pay off debt, cover a medical emergency, or make an investment — selling future payment rights to a factoring company is the most commonly used path. It is legal, it is court-approved, and it is well-regulated at both the federal and state levels.

How a factoring transaction works

A factoring company (also called a purchasing company) pays you a lump sum today in exchange for your right to receive a defined stream of future payments. The lump sum is always less than the total face value of the payments you’re selling — this discount reflects the time value of money and the company’s cost of doing business. The difference between what you receive and what those payments would have been worth over time is real and significant. Going in with clear math is essential.

The transaction process generally follows these steps: you request a quote from one or more factoring companies, negotiate the terms, receive a contract, and then submit a petition to a court in your state. A judge reviews the transaction, and if approved, the annuity issuer is notified and redirects the specified payments to the factoring company. You receive your lump sum at or shortly after court approval.

Court approval and the “best interest” standard

Court approval is not optional — it is a legal requirement for every structured settlement transfer in the United States. Under the Structured Settlement Protection Acts enacted by all 50 states, a judge must find that the transfer is in your best interest and in the best interest of any dependents you have. This standard exists to protect settlement recipients from predatory transactions that would leave them — or their families — financially worse off.

The court will typically consider factors such as your financial circumstances, the reason for the transfer, whether you received independent advice, and the discount rate being applied to your payments. A legitimate factoring company will walk you through this process and ensure you understand what you’re agreeing to before anything is filed.

Federal and state rules

At the federal level, IRC §5891 imposes a 40% excise tax on structured settlement transfers that don’t comply with applicable state law — a provision specifically designed to ensure that factoring companies comply with state Structured Settlement Protection Act requirements. In practice, this means any reputable company will always pursue court approval, because the alternative makes the transaction prohibitively expensive.

State Structured Settlement Protection Acts vary in their specific requirements, but all share the core mandate: independent professional advice must be disclosed, a waiting period must be observed between when you receive the transfer agreement and when it can be finalized, and a court must approve the transaction. The National Conference of State Legislatures tracks state-level structured settlement legislation and can serve as a starting point for understanding your state’s specific requirements.

Common reasons people transfer or sell

People transfer or sell structured settlement payments for a wide range of reasons. The most common include:

• Immediate financial needs: Medical expenses not covered by insurance, preventing foreclosure or eviction, resolving high-interest debt, funding urgent home repairs, or covering an unexpected financial emergency that a monthly payment can’t address quickly enough.

• Major life investments: Purchasing a home, funding education, starting a business, or seizing a time-sensitive investment opportunity that requires upfront capital.

• Family obligations: Providing financial support to a family member, covering caregiving costs for an aging parent, or — exactly as this article describes — getting money to someone else who needs it now.

• Financial simplification: Some people prefer a single lump sum over managing a stream of payments over many years, particularly if their financial circumstances have changed significantly since the original settlement.

Whatever the reason, the question to ask yourself honestly is whether the immediate benefit outweighs the long-term cost of losing guaranteed future income.

What to weigh before you decide

The financial trade-off

The central trade-off of any structured settlement sale is giving up a guaranteed future income stream in exchange for cash today — at a discount. According to the Consumer Financial Protection Bureau, discount rates on structured settlement transactions typically range from 9% to 18%, though they can go higher. On a $100,000 stream of future payments, a 15% discount rate can mean receiving $60,000 or less in hand today. That gap is the true cost of liquidity.

Before agreeing to any transaction, get quotes from multiple companies, calculate the effective discount rate, and understand the total face value of the payments you’re surrendering. A financial advisor or attorney can help you model these numbers.

Alternatives worth considering

Before committing to a full sale, explore whether these options might serve your needs better:

• Partial sale: Most factoring companies will purchase a portion of your future payments, leaving the rest intact. If you need $30,000 but your settlement is worth far more, selling only what you need is almost always financially preferable to selling everything.

• Beneficiary designation instead of sale: If the goal is to ensure someone receives your payments after you die, a beneficiary designation (discussed above) accomplishes this at no cost and with no discount — and should be explored before any sale is considered.

• Budgeting and financial counseling: For people whose immediate need stems from ongoing cash flow challenges, reviewing your options with a financial professional may help restructure expenses in a way that makes a sale unnecessary. The

Protecting yourself: due diligence and red flags

The structured settlement purchasing industry is legitimate and heavily regulated, but that doesn’t mean every company in it operates with integrity. Before signing anything, look for these warning signs:

• Pressure to decide quickly. Legitimate transactions are not emergencies. Any company that creates artificial urgency is working against your interests.
• Guaranteed court approval. No legitimate company can promise a court will approve your transfer. A judge reviews every transaction independently. Any company that “guarantees” approval is either lying or willing to commit fraud.
• Refusal to disclose the discount rate or effective yield. Reputable companies are transparent about how much you’re giving up. Opacity on this point is a serious red flag.
• Unsolicited contact. Responsible companies respond to inquiries — they don’t cold-call settlement recipients or send unsolicited mailers designed to look like official court documents.
• No mention of your right to independent advice. State laws require companies to inform you of your right to seek independent legal or financial counsel. A company that doesn’t mention this right is almost certainly not complying with the law.

The Federal Trade Commission provides guidance on spotting financial scams and understanding your consumer rights in financial transactions.

The process and timeline

If you decide to move forward with a sale, here is the typical sequence:

• Request quotes. Contact one or more factoring companies and provide details about your payment schedule. Compare offers carefully — discount rates vary significantly between companies.
• Review and sign the transfer agreement. You are entitled to a waiting period (typically 3 days, though it varies by state) between receiving the agreement and signing it. Use this time.
• Obtain independent professional advice. Some states require written confirmation that you received independent advice; many attorneys and financial advisors provide this service.
• File the court petition. The factoring company typically handles filing, but you should understand what’s being submitted to the court on your behalf.
• Attend the court hearing. In most cases this is brief, but a judge may have questions. Some states allow the hearing to proceed without your physical presence.
• Receive the court order. If the judge approves the transfer, a signed order is issued and sent to the annuity issuer.
• Receive your lump sum. The annuity issuer processes the order and the factoring company releases your funds. This typically happens within a few days of court approval.

End-to-end, the process generally takes 45 to 90 days from first inquiry to cash in hand, depending on court scheduling in your jurisdiction and the complexity of your transaction.

Frequently asked questions

Can I give my structured settlement payments to my child?

Not directly. Your annuity contract almost certainly contains anti-assignment language that prevents you from redirecting payments to another individual, including a child. The practical alternative is to sell your payment rights through a court-approved transaction, receive a lump sum, and give the cash to your child. Gift tax rules will apply to any amount above the annual exclusion ($19,000 per recipient as of 2025), so consult a tax professional.

Can someone inherit my structured settlement?

It depends on your specific annuity. Guaranteed (period-certain) payments can typically be inherited by a named beneficiary. Life-contingent payments stop at your death and cannot be passed on. Review your annuity documents and contact your annuity issuer to confirm which type of payments you have and whether a beneficiary designation is in place or can be added.

Do I need a lawyer to transfer or sell?

You are not legally required to hire an attorney, but it is strongly advisable — particularly for large transactions. An attorney can review the transfer agreement, verify that the discount rate and terms are reasonable, and represent your interests in the court proceeding. Some states require written documentation that you received independent professional advice. The cost of legal counsel is modest compared to the financial stakes of a typical structured settlement transaction.

How long does court approval take?

Most transactions complete in 45 to 90 days from initial application to final court order. Factors that can extend this timeline include court scheduling backlogs, missing documentation, a judge requesting additional information, or complications with the annuity issuer. Working with an experienced factoring company that knows your state’s process can help minimize delays.

Will I be taxed if I sell?

Generally, no — the lump sum you receive retains the same tax treatment as the original structured settlement payments. Payments received as compensation for physical injury or physical sickness are excluded from gross income under the federal tax code, and that exclusion typically carries through to the lump sum received in a sale. The IRS addresses this directly in Tax Topic 431. However, tax law is complex and individual circumstances vary. Before completing any transaction, consult a qualified tax professional to understand the specific implications for your situation.

Pave the way with Stone Street

Do you need upfront money for any of the following?

• Annuity

• Structured Settlement

• Inherited Annuity

• Assignable Annuity

If so, we will work with you one-on-one so you get the options that best fit your needs:

• One-on-one consultation.

• Customized solution just for you.

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Call us at 866-416-5118 to talk about your financial needs and what annuity payments you have coming to you. We’ll do the hard work and handle the rest of the process!

SOURCES CITED

• Legal Information Institute, Cornell Law School — IRC §130 (Qualified assignments)
• Legal Information Institute, Cornell Law School — IRC §5891 (Structured settlement factoring transactions)
• Internal Revenue Service — Tax Topic 431 (covers the §104 exclusion for personal injury settlements)
• Consumer Financial Protection Bureau — What is a structured settlement and should I sell my structured settlement payments?
• National Conference of State Legislatures — State structured settlement legislation tracker
• Consumer Financial Protection Bureau — Consumer debt resources
• Federal Trade Commission — Consumer guidance on financial scams and consumer rights