qualified assignment company

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After a settlement is reached and reduced to writing in a settlement agreement, the defendant can “assign” its obligation to pay any future payments to the plaintiff. This assignment is made to an entity called an assignment company to meet its obligations.

During the assignment process, the defendant must transfer the applicable settlement monies to the assignment company, after which both parties must sign a Uniform Qualified Assignment contract.

Understanding Qualified Assignments

An assignment is considered a “qualified assignment” if the settlement proceeds are excluded from income taxes under IRC §104a(2). To be excluded, the proceeds must be for compensatory damages from a case involving physical injury or illness.

IRC§130(c) states that payments can be made in the form of future periodic payments as long as:

• Cash flows are fixed and determinable
• Cash flows cannot be accelerated, deferred, increased, or decreased

Upon assignment of the obligation from the defendant to the assignment company, the defendant is released from further liability and administrative duties.

The Benefits of Qualified Assignments

From the plaintiff’s perspective, an assignment to a financially secure insurance company gives them the assurance that future payments will be made as promised . For many plaintiffs, this assignment to the life company alleviates the stress of future contact with the defendant, their insurer, or any party responsible for the injury.

From the defendant and/or their insurer, an assignment relieves the defendant of further compensation and responsibility. The defendant and/or their insurer are able to write just one check to the assignment company for the defendant’s liability, take the corresponding tax deduction, and transfer administrative duties and payment responsibilities to a third party (the life company and their assignee).

Learn more by contacting ROBINYOUNG & COMPANY.

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Structured Settlement Annuity FAQs

Structured settlement annuities common questions, what is a structured settlement.

Structured settlements are a tax-advantaged method of compensating injury victims. Encouraged by the U.S. Congress since 1982, a structured settlement is a voluntary agreement between the injury victim and the defendant for future periodic payments.

With a structured settlement annuity, the injured claimant doesn’t receive compensation for his or her injuries in one lump sum. Rather, the claimant receives a stream of tax-free payments tailored to meet future medical expenses and basic living needs.

A structured settlement may be agreed to privately (for example, in a pre-trial settlement) or it may be required by a court order, which often happens in judgments involving minors.

What kind of flexibility is associated with a structured settlement annuity?

Structured settlement annuities are exceptionally flexible and can be designed to meet virtually any set of needs. A relatively simple payment schedule can be set up that provides for equal payments at set intervals – for example, every month for 20 years.

However, payments need not be made in equal amounts. A claimant who will need a new wheelchair every three years might elect to receive a larger payment every 36 months to help defray the cost. (This would presumably be in addition to the regular payments.)

The inherent flexibility of structured settlement annuities means that they are well-suited to compensate claimants for a wide variety of injuries.

Who determines the amount of Structured Settlement payments and the schedule?

In any physical injury case, the claimant and defendant negotiate matters such as the cost of the injured party’s medical care, basic living, and family needs. Oftentimes, one side (or both) engages an expert, such as a settlement consultant, who provides calculations on the long-term cost of these needs.

Once there is agreement on the total damages, the injured claimant can select a periodic payment plan that meets his or her needs. The defendant must then agree to make future payments via a structured settlement annuity. The defendant assigns the payment obligation to a third-party assignment company, who funds the obligation to make periodic payments through a life insurance company annuity.

As these issues involve complex calculations, specific language for the settlement agreement, and the completion of the appropriate paperwork, the claimant should always consult with his/her attorney and settlement consultant.

Are structured settlement annuities more likely to be used in certain types of cases?

Structured settlement annuities can be ideally suited for many types of cases, including:

• Persons with temporary or permanent disabilities;
• Guardianship cases involving minors or legally incompetent adults;
• Workers’ compensation cases;
• Wrongful death cases with surviving spouses and/or children; and
• Severe injury cases, particularly those that involve long-term needs for medical care, living expenses, and familial financial support.

I’m involved in a lawsuit now. Why should I consider a structured settlement annuity?

The tax-free payments from a structured settlement annuity can:

• Relieve the financial pressures of medical expenses and living needs;
• Meet long-term rehabilitation or permanent care facility expenses;
• Provide for the future costs, such as college tuition, a down payment on a home or mortgage payments, or retirement;
• Provide enhanced protection of the recovery from creditors; and
• Provide long-term, tax-advantaged financial security.

What are the advantages of a structured settlement annuity over a lump-sum payment?

A structured settlement annuity has several advantages. First, there is security . A structured settlement annuity provides guaranteed* long-term income, giving the injured claimant the ability to recover without spending time and resources determining investment strategies. Regular payments can be tailored to fit the claimant’s specific needs.

A second advantage is financial . When Congress amended the federal tax code to encourage structured settlement annuities, it explicitly provided that 100% of every structured settlement payment received on account of physical injury or sickness within the meaning of IRC 104(a)(2) would be exempt from federal and state income taxes. While the proceeds from a lump sum injury settlement are income-tax free, if the proceeds are placed in a traditional investment, any interest earned may be taxable.

There are many other benefits as well. For instance, the claimant avoids the risk of mismanaging his or her settlement proceeds. Insurance industry statistics show that nearly 25-30% of all injured parties completely dissipate their judgments or settlements within two months of recovery, and 90% of them spend it all within five years. (Source: The Rutter Group, Ltd. from Flahavan, Rea, Kelly & Tener, “California Practice Guide: Personal Injury” (TRG 1992) Ch. 4.)

Finally, using a structured settlement annuity, an injured party can avoid the risk of outliving his or her recovery by transferring the risk to a reliable, experienced financial institution.

*Guarantees are subject to the claims-paying abilities of the issuing insurance company.

What are the disadvantages of a structured annuity?

There are two main disadvantages of a structured settlement annuity:

• The periodic payments cannot be borrowed against, deferred, accelerated or modified once they’ve been set up. That’s why it is vitally important for claimants to work with an experienced settlement consultant to determine the best individual strategy.
• Default risk, meaning the life insurance company that is selected becomes unable to make the payments. However, this risk is small due to the well-capitalized life insurance companies that are used for structured settlement annuities. Settlement proceeds can also be spread among several different life insurance companies to lessen default risk.

What are some of the federal tax rules that make structured settlement annuities beneficial?

In the Periodic Payment Settlement Act of 1982 (P.L. No. 97-473), Congress adopted tax rules to encourage the use of structured settlement annuities for resolving physical injury cases.

Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement annuity payments are tax-free to the injured party. By contrast, the investment earnings on a lump sum payment are usually fully taxable.

What is a “qualified assignment”?

The defendant or its insurer may transfer the obligation to make future payments through a “qualified assignment” to a financially secure and experienced institution – a life insurance company, for example.

This process relieves the defendant of further responsibility for the payments and transfers the administration and record-keeping responsibilities. The assignment company specializes in these activities and may offer additional financial security to the claimant.

What other federal tax rules govern the use of structured settlement annuities and qualified assignments?

Internal Revenue Code Section 130 specifies the requirements to establish a qualified assignment, which includes:

• The assignee assumes the liability from the defendant;
• Both the injured party (and his/her attorney) and the defendant agree that the payment schedule cannot be “accelerated, deferred, increased or decreased”;
• The payment stream may be excluded from the recipient’s gross income for tax purposes;
• The injury must be a physical sickness or injury; and
• A highly secure funding asset (such as an annuity or U.S. Government obligation) must be used to fund the payments.

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If attorneys want their fees to be invested pursuant to a comprehensive investment plan as of their choosing or with the guidance of their financial advisor — on a fully tax-deferred basis — the compounding opportunity provided by FSP can’t be beat!

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Learn More About Managing a Lump Sum

Many injury victims find it very difficult to manage a lump sum settlement on their own. In fact ninety percent of injury victims have nothing left of their settlements within five years of settlement. Implementing a sound financial plan with the right combination of investments can prevent this from happening. However, most financial products have costs associated with them and even though a physical injury recovery is tax-free, once invested the gains are taxable. Nevertheless, there are many good options for managing your physical injury recovery and we can assist you developing a plan that is right for you. Certain financial products have less risk and can offer guarantees of principal to limit downside risk since you only get one opportunity to preserve your physical injury recovery. Our job is to give you sound advice about the options to let you make the best possible decision.

You may want to consider mutual funds, managed accounts, annuities, life insurance, college plans and long term care insurance. All of these products can be wrapped up inside trusts to protect you and your loved ones. It is important to explore the many options available and that is where we come in.

Why You Need a Settlement Planner

The intersection of settlement planning, settlement taxation, public benefit preservation and liens complicates settlements today. These matters are a fertile area for malpractice claims against personal injury attorneys. Without an expert’s guidance, keeping up to date on the changing facets of the law and ethical responsibilities in these areas is difficult at best. You should not underestimate the importance of hiring an expert settlement planner on your next case who can help guide you and your client through these complexities.

The use of structured settlements and trusts as a way to fund future needs for injury victims has become common place in today’s settlement landscape. Frequently, these solutions are proposed by the defendant as a way to settle the case.

Structured Settlements

A structured settlement is simply a future periodic payment arrangement that is made a part of a personal injury settlement. Under Section 104(a)(2) of the Internal Revenue Code, all of the future periodic payments are completely tax-free to the injury victim even though the payments include interest they earn. The structured settlement is spendthrift as it can’t be accelerated, invaded or sold. Fixed annuities are used as the funding mechanism for a structured settlement. These annuities are offered by large well capitalized life insurance companies. Annuities are used because of their flexibility and because many different payments options are available for the injury victim to meet their needs.

While the transaction and the concept might seem very simple, there are many issues that trial lawyers should be aware of as well as concerned about. If you review the sections in this part of the site it will give you a good idea of the issues and also why it is important to have your own settlement planner looking out for these issues.

Understanding the Transaction

In order to have a tax-free structured settlement in a personal injury settlement, a release with the required language for a structured settlement must be executed, a uniform qualified assignment must be executed and the structured settlement annuity must be funded by the defendant with a check made payable to the assignment company. The premium which goes from the defendant to the assignment company is used to purchase the qualified funding asset (the annuity contract) from the annuity issuer. The assignment company is the obligor (owes the payments to the injury victim) and the annuity issuer (the life insurance company) guarantees the payments. The release must set forth the obligation of the defendant to make the future periodic payments and then that obligation is assigned to the assignment company relieving the defendant of any future liability or obligation. The qualified assignment is the document that transfers the future periodic payment obligation from the defendant to the assignment company and is a required document in the transaction.

Qualified Settlement Funds

Qualified Settlement Funds grew out of Internal Revenue Code Section 468B. 468B was passed by Congress in 1986 and created Designated Settlement Funds (“DSF”). The DSF was fairly limited in the way it could be utilized and in 1994 passed regulations creating a new type of fund, Qualified Settlement Funds (“QSF”). The DSF and QSF were created for use in mass tort litigation enabling a defendant to settle a claim by depositing money into a central fund that could then settle with each individual plaintiff. The defendant could walk away from the fund after its creation and funding taking a deduction for the entire settlement amount in the year it was deposited into the fund. However, the QSF is not limited to situations involving mass torts. A Qualified Settlement Fund can be used to settle cases of any value involving multiple plaintiffs including cases involving the personal injury victim with a derivatively injured spouse, child or parent. It can arguably be used in single plaintiff cases based upon the plain language of the Treasury Regulations.

Using a 468B Qualified Settlement Fund settlement proceeds can be placed into a QSF trust preserving the right to do a structured settlement and protecting public benefit eligibility temporarily. While the money is in the QSF, a financial settlement plan can be designed and liens can be negotiated. Additionally, if the settlement recipient is on public benefits the QSF avoids issues with constructive receipt of the settlement, which could trigger a loss of public benefits. While the funds are in the QSF, there is time to create a public benefit preservation trusts for the settlement recipient. The structured settlement or other financial products can then be set up to work in concert with a special needs trust or Medicare Set Aside so that the injured victim does not lose their public benefits.

IRS Code § 468B and Income Tax Regulations found at § 1.468B control the use of a QSF. These provisions provide that a defendant can make a qualifying payment to the QSF and economic performance would be accomplished, crucial for tax reasons to the defendant. Thus the QSF trustee can receive settlement proceeds allowing the defendant a current year deduction releasing them from the case. The QSF trustee can, after receiving the settlement proceeds, agree to pay a plaintiff future periodic payments, assign that obligation to a third party, and allow the plaintiff to receive tax-free payments under IRC § 104(a)(2) (the provision excluding from gross income periodic payments from a structure). The transaction works exactly the same as it normally would when you have the defendant involved in the structured settlement transaction.

There are only three requirements under 468B to establish a QSF trust. First, the fund must be established pursuant to an order of a court and is subject to the continuing jurisdiction of the court. Second, it must be established to resolve one or more contested claims arising out of a tort. Third, the fund, account, or trust must be a trust under applicable state law. One restriction is that it can’t be used in a Workers’ Compensation case.

Mechanically, it is easy to establish a QSF. First, the court having jurisdiction over the litigation must be petitioned to establish the fund. The court is provided with the fund document and an order to establish the fund. Once the order is signed, the defendant is instructed to make a check payable to the QSF and the defendant is given a cash release in return for the payment. The QSF then can fund a structured settlement, pay liens and fund a special needs trust. Once all funds have been distributed, the fund dissolves.

There are several advantages to utilizing a QSF. First, funding the QSF removes the defendant and defense counsel from the settlement process. It is very much like an all cash settlement in the eyes of the defendant. Once the Trustee receives the settlement money, economic performance has occurred and the defendant is out of the case. Second, the attorney’s fees and other expenses can be paid immediately from the 468B fund. Third, the 468B trust removes the defendant from process of allocating the settlement amounts between the various plaintiffs. Fourth, the plaintiffs receive the interest income from the settlement fund. The plaintiffs can take their time, carefully considering the various financial decisions they must make and addressing public benefit preservation issues. Finally and probably most importantly, the time crunch is alleviated with regards to the lien negotiations, allocations, and probate proceedings.

The end of a personal injury case is typically one big time crunch which I call the “settlement time crunch”. There is enormous pressure to wrap up the case quickly to get the client paid and yourself paid. However, in the rush to finalize the settlement you may overlook or miss important settlement planning issues. Instead, a Qualified Settlement Fund can be created to receive the settlement proceeds thereby giving everyone the time necessary to carefully plan for the future. You can get your fees and costs quickly. The funds are obtained from the defendant, they are released and the client’s settlement dollars can begin to earn interest for them. The liens can be negotiated, allocation decisions can be made, public benefit preservation trusts can be implemented and structured settlements can be considered. Your option to structure your attorney fees is also preserved. The QSF is an important tool for trial lawyers to consider using.

Reducing Default Risk

The only major risk an injury victim takes when entering into a structured settlement is the solvency of the company selected to provide the future periodic payments. However, this is a relatively small risk given the financial size of the major life insurance companies that provide structured settlement annuities. Nevertheless, when a “substantial” structured settlement is done one must always consider split funding the structured settlement with multiple companies to spread out the risk. The premium can be spread out amongst as many different companies as the client would like. However, if the case involves a rated age it may be detrimental to the client to split fund. This issue must be examined on a case by case basis.

In addition, when a structured settlement is done secured creditor status can be requested. This is accomplished by doing a special kind of assignment document called a Uniform Qualified Assignment Release and Pledge Agreement. This gives the injury victim secured creditor status which means in the event of the insolvency of a life insurance company they would stand in line only behind the government as a creditor. It moves them to the front of the line.

Substandard Age Ratings

You may have heard of “Substandard Age Ratings” or “Rated Ages” if you have had a case where the plaintiff had a reduced life expectancy and a structured settlement was offered to settle the claim. A “rated age” is a life expectancy adjusted age used to calculate the cost of a structured settlement. If a person receives a rated age it means that the life insurance company has decided that the person’s life expectancy is less than normal. The shortened life expectancy results in a lower structured settlement cost for the same benefit stream when compared to the cost for a person with a normal life expectancy. For example, a case we consulted on involved a two year old brain injured girl who had a rated age of sixty-four. Therefore, a life annuity, the most common funding vehicle for a structured settlement, is priced as if the plaintiff is chronologically age sixty-four. This results in a significant cost savings on the price of the life annuity.

A structured settlement consultant obtains rated ages by sending the plaintiff’s medical records to the life insurance companies that are in the structured settlement market. Usually, a consultant will send out at the most fifteen to twenty pages of records indicating any pertinent diagnosis and current medical conditions. A life company physician or medical underwriter determines the rated age after reviewing the records provided to them. I have heard many times from attorneys that none of the plaintiff’s physicians say she has a reduced life expectancy so don’t bother getting rated ages. Just because a doctor does not comment on reduced life expectancy or states there is no reduced life expectancy, does not mean there will be no rated age. While what the doctors say carries weight, the ultimate decision on whether to issue a rated age rests with the life insurance company. In most cases, the life insurance company will issue a rated age if certain medical conditions are present.

Physicians’ and Medical Underwriters’ rated age assessments can vary greatly among life insurance companies since they are based upon an examiner’s opinion and opinions among examiners will differ. For example, in the case mentioned above involving the two year old brain injured girl, we obtained rated ages with the highest being sixty-four and the lowest being twelve. The fifty-two year difference in the rated age makes a tremendous difference in the ultimate benefits to the victim. Even the thirteen year difference between the highest rated age of sixty-four and the second highest rated age of fifty-one makes a significant difference. In the case involving the brain injured minor, Pacific Life had the highest rated age and New York Life had the second highest rated age. A.M. Best rates both Pacific Life and New York Life A++ so they were both highly rated life insurance companies. The structured settlement consultant working for the defendant was not approved to represent Pacific Life. If we had not been involved in the case the defense consultant would have quoted New York Life and would not have gotten a rated age from Pacific Life. If the victim did not know about Pacific Life she would have lost a substantial amount of money.

How much would she have lost? If the rated age of fifty-one is used the plaintiff has lost $514,938 over the guarantee period and $2,439,987 over the expected period. As you can see even a relatively small variation in rated ages, such as thirteen years, can have a profound impact on a case. To add another layer of complexity, you must then compare all of the rated ages with each particular life insurance company’s rates to determine the best possible deal. It is very important that you have all of the facts when a rated age is involved.

Annuity Rates

The two main determinants of the price of a structured settlement annuity are rated ages and annuity rates (pricing). To figure out the best possible solution using a structured settlement you must compare the rated ages with the annuity rates. Annuity rates vary depending on how aggressively a life insurance company is going after business and on market conditions. Most life insurance companies offer what is called daily rates (special pricing) if the premium is $250,000.00 or more.

As an example, take the case of Ed. His highest rated age was from Allstate at fifty-three and $1,000 per month for life with a twenty year guarantee had a cost of $183,812. The second highest rated age at 38 was from Prudential and the same benefits had a cost of $202,374. Mass Mutual had the third highest at 35 and the same benefits had a cost of $212,358. Interestingly though the fourth best price was from Met which had one of the lowest age ratings at 14 but a cost of $216,314 which was lower than quite a few companies that had better age ratings. In some cases the highest age rating may not yield the lowest price as it normally does thus a complete market survey must be done to get the best possible deal for the injury victim.

Explanation of State Insurance Guaranty Associations

Understand first, that though state guaranty fund laws are based on an original model act, over the years, each act has been modified such that they are all somewhat different. At its core, each state has a guaranty association composed of all of the companies who write life and health insurance in that state. If any carrier becomes insolvent, the guaranty association assesses its members against a predetermined formula to make up the shortfall. The variables in each state include:

• The coverage limit: Most states use a $100,000 limit though some offer $300,000 or $500,000 for annuities, including structured settlement annuities (Florida’s is $300,000 – see attached statute). The limit refers to the present value of the remaining future stream of payments at the time of the insolvency.
• The triggering mechanism: Most states trigger the coverage with insolvency. Some few use a somewhat lower standard.
• Definition of who is covered: Most states cover the annuity owner, in the case of a structured settlement, the assignment company. Some states cover the annuitant or the measuring life.

In practical terms, the guaranty associations fund the transfer of obligation from an insolvent insurer to a solvent insurer. The classic case was the Canadian company, Confederation Life. When Confederation was taken into conservation by the Canadian government, the US regulators separated the US business from the parent company. Each block of business was grouped and assigned a pro rata share of the assets. The block of assets and liabilities in each line of business was then sold at auction to the highest bidder (which is to say, the company willing to take the least assets in order to guaranty 100% payments to all policyholders in that line of business. The prize business, life insurance and investment products, is sold first. Since those contracts represent an ongoing stream of premiums or payments, companies are willing to take less assets in order to secure the business. The excess assets are then poured over the other lines of business. The single premium business is sold last, by which time it is covered by the maximum amount of assets. If there is any shortfall, the guaranty funds step in to fill the gap. It is relatively rare for guaranty funds to have to do more than finance the process and recoup their investment once all policyholders have been guaranteed 100% payments. In the case of the kind of highly rated companies associated with structured settlements it is rarer still.

Only once in the history of the guaranty funds has a shortfall continued to exist at the end of the above process. That was the case of Executive Life of California which fell victim to the junk bond craze of the mid-1980′s. First Executive Corp, ELIC’s parent was holding some 13,000 structured settlements when it was taken into conservation. Of those, 8,000 were covered 100% by ELIC’s assets. Of the remaining 5,000, 3,500 were covered by a combination of ELIC’s assets and the guaranty fund coverage. Another 1,100 policies were made whole by a combination of the above and shortfall payments made by property casualty insurers. The remaining 300 annuitants recovered an average of 92 cents on the dollar.

That is the only case in which anybody suffered any loss with a structure. Given that there are more than 500,000 structures in force around the world, an 8% on 300 policies is an infinitesimally small loss ratio. Moreover, with the improvements in state regulation systems, including risk-based capital measures, far fewer insolvencies are expected to occur, and fewer still, if any, among the companies who write structures who represent the top 2% of all life and annuity companies in the country.

Thing is a Qualified Assignment?

Why most underwriter won't construction absent one.

What is ampere qualified assignment with a structured settlement?

A qualified assignment enables a Defendant, Insurer, conversely Qualified Settlement Fund, to achieve a complete novation of the future periodic payment complaint when ampere structured settlement is established, through a substitution of obligors.  This is important to Accused, or Insurer because the total payments starting a structured settlement will exceed the cost of the structured settlement.  A structured settlement is an useful settlement tool for all parts, but without a qualified assignment the Defendant otherwise insurer has contingent liability in the incident of liquidation of the annuity issuer that could exceed the payment funding amount. 12-2901 - Definitions

A qualified assignment is a transfer of a contractual obligation for make future periodic payments, which satisfies the demands of Internal Revenue Code (IRC) §130. In a built settlement accord, the original obligor (the defendant, insurance carrier for which suspended, or the trustee of an IRC 468B skilled settlement fund), assigns its obligation to make the future recurrent payments defined in the settlement agreement to a "qualified assignment company". Provide your claimants with a tax-advantaged search that turns their settling to ampere guaranteed stream a income, protected from market volatilization.  

Today he is very unique that a structured settlement is conventional as part in a personal injury, wrongful deaths or workers compensation settlement out a qualified assignment. Structured communities: An introduction. A lump whole recovery used to be the ordinary are individual trauma cases. The injured claimant will faceless.

Only payments which show damages for personal injuring, physical sickness, wrongful death and payments for workers compensation may be allotted via a qualified assignment. Settlements That Is Made For Last | MetLife Retirement & Income Solutions

Qualifications Assignment in the Internal Generated User

According to IRC 130(c) , the term " qualified assignment " means whatsoever associate of a coverage in make periodic payments as damages (whether by suits oder agreement), or as  compensation  under any workmen’s  compensation  on account of personal injury or disorder (in a case involvement bodily injury or physical sickness)—

(1) if the assignee assumes such liability from a person who is a party to the suit or agree, other the workmen’s  ausgleich  claim, and

(2) if —

(A) as periodic payments are fixed and determinable as to amount real time of making ,

(B) such periodic payment cannot being accelerated, deferred, increased, or decreased by the receivers of so payments,

(C) the assignee’s verpflichtend on accounting of the personal injuries or complaint is no greater than the obligation of to person who assigned the release, and Qualified vs. Non-Qualified Assignments: What Do They Mean for Settlement Proceeds? - Traci Kaas

(D) such periodic payments are excludable from the gross income for of recipient under paragraph (1) or (2) of section 104(a).

The determination for purposes in this chapter of when the recipient is treated such having received any payment with respect up which there has been a  qualified assignment  shall be made without regard to optional provision of such assignment which subsidy the recipient rights as ampere payment greater easier those of a general creditor. In-house Revenue Service

(d) Qualified funding asset

For specific of such section, the term “ specialized funding value ” means all annuity drafting issued by a company licensed to do business as an security group below the legislation is any State, or anywhere obligation of the United Conditions, if—

(1) how annuity contract or obligation is used by the assignee to funded occasional how under any  highly assignment ,

(2) the periods of the payments from the annuity contract or obligation are reasonably related to the periodic payments under the  specialized assignment , plus the amount of any such payment go the contract oder obligation does no go the periodic payment to which it relates,

(3) such annuity contract or obligation shall designated through the taxpayer (in such manner than the Secretary shall by regulations prescribe) as being taken into account under this unterteilung with respect to such  qualified assignment , and

(4) like annuity contract or obligation the earned by the taxpayer not more than 60 period before and date to the  certified assignment  and not late for 60 days after that date starting such assigned.

Does " fixed and determinable" mean that payments been fixed at ampere certain amount and cannot change?

The IRS has finished within several Confidential Letter Adjudication over two decades, obtained by structured settlement annuity deliverers in sustain of product origination, that Non-Qualified Structured Settlements | Sages Settlement Consulting fixed and determinable could be based on an objective formula

In IRSA PLR-202127039 (published July 9, 2021) in response to a request from Habitant General Life Insurance Company in support of its Interest Linked Structured Deal Annuity, the IRS ruled:

• To periodic Subject Payments from damages that Minor will receive are fixed and determinable as to sum and time of payment within the importance of § 130(c)(2)(A) even though they are calculated pursuant into an objective quantity based on the performance of 10-year United States Exchequer Relationship Yield Rate. Structured Settlements the Qualified Duties: Whereby federal tax ... In addition, of other requirements of § 130(c) need also been met. Accordingly, the assignment enter into pursuant to the Assignment Agreement is an qualified appointment under § 130(c).

 2.   The Annuity purchased until to Assignee proficient as one qualified funding asset see § 130(d).

In IRS PLR 201435006 (published on May 29, 2014) with show to a request to Placid Life to support its Index Linked Annuity Payment Adjustment Rider (ILAPA), the IRS controlled that:

1. This cyclic installments of damages that Claimant will receive be fixed furthermore traceability than go amount and time of payment within and meant of § 130(c)(2)(A) even though they are calculated pursuant toward an objective formula based on the performance of the S&P 500 Index. At a comes toward placing settlement proceeds or advocate fees int an annuity, claimants and attorneys may find themselves confused about the fax significant associated with […]

2. The Structured Settlement Indexed Annuity which Assignee will acquire away either Issuer 1 instead Issuer 2 will not collapse to qualify as a qualified funding plant under § 130(d) solely until background of annuity’s variable expenditures.

3. The possibility of a commutation of Claimant corresponds to which Notice of Adverse Conversion will did affect whether one structured settlement appointment satisfies the requirements of a qualified mapping from § 130(c). A capable assignment lives single of the process to establish ampere structured statement that enables a Defendant, Insurer, or Qualified Settlement Financing, to achieve a complete novation of that future periodic payments claim established by weiter or agreements, through a substitution of obligors.

4. This annuity acquired by Assignee becoming not fail to be a qualified funding asset under § 130(d) by reason to which Notice of Hardship Conversion.

In PLR 199943002  (1999), obtained of MetLife to support a vary annuity structured arrangement product she was introducing, the IRS concluded:

I1. Aforementioned periodic payments of damages so Claimant will receive are fixed and determinable as to amount and time of payment under § 130(c)(2)(A) even nevertheless they are calculated pursuant until an objectives formula based on the performance on the Standard & Poor’s 500 Stock Index and/or a mutual bond portfolio designed to achieve long-term growth of capital and moderate current income; RCW 19.205.010: Definitions.

2. The annuity Assignee will acquire from Issuer willingly cannot fail to qualify as a qualified funding asset under § 130(d) solely by reason of the annuity’s variable payouts, which are pretty related to the periodic payments under to qualified assignment; additionally 3. Claimant’s physical possession of the annuity exclusively to perfect, on applicability state law, a security interest is the annuity used to fund the periodic payments will does cause Claimant to receive income in the year Claimant takes possession of to annuity contract while the defendant's subscription to Assignee is one qualified assignment available § 130(c).

What is a qualified assignment company?

Generally, a qualified assignment company is adenine special purpose company, which does little more less hold integrated settlement annuities or United States Storehouse obligations as a "qualified funding asset" to back up which cyclically payout commitments it assuming coming Defendants, Insureds or qualified accounting subsidize administrators/trustees. A qualified assignment company  may  actually will an insurance company itself, but most qualified assignation companies are not insurance companies. When an annuity is used as an certified promotion property, the qualified assignment our a usually related to the life insurance company issuing the structured settlement annuity. In such cases, the skill assignment company typically purchases an annuity from the connected lives insurance your as a skill funding asset pursuant to IRC 130(d). (1) "Annuity issuer" signifies einen insurer so has issued a sign to fund periodic ... a structured account agreement or a qualified assignment agreement.

Types of Experienced Assignment Agreements

1. Qualifies Assignment (QA)

ADENINE law instrument executed by Defendant, Insurer or Qualified Settlement Fund Manager and Qualified Assignment Company

Including referred to as a two-party qualified assignment. 

2. Qualified Assignment and Release (QAR)

A legal instrument perform by Defendant, Insurer with Qualified Settlement Fund Trustee, Qualified Assignment Company and Releasing Party. Also refered to as a three-party skilled assignment

3. Qualified Assignment Release and Pledge (QARP)

AMPERE statutory instrument executed by Defendant, Insurer alternatively Qualified Settlement Fund Trustee, Qualified Assignation Company and who Claimant-Secured Party. Used where there is adenine desire into give which payee a security equity in who annuity contract. 

Whichever Qualified Assignment Arrangement go Use?

While this QA works, e be no longer the standard from practice. While it affects the plaintiff, the QA's two-party operation is not inclusive are the plaintiff.  It is between the insurer plus the assignment company. Includes the next two options, the QAR and QARP a plaintiff signature furthermore review is necessary.

Important Observe

Where the Claimant-Secured Party your different than the Cathartic Party can fresh signature on the QARP could is required.

For demo, a minor plaintiff who will be grown when payments become made but is represented via a mother or guardian toward the time to settlement. Another exemplar could be where the payee is a Special Needs Trust (Supplemental Needs Trust, in New York), and the trust is the secured party, but that plaintiff is releasing the submit

The following video about structured settlement documentation may breathe helps for those who wish to learn more. We also encouraged readers to call is at 888-325-8640.     Last updated Month 3, 2023

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Non-Qualified Assignments and Structured Installment Sales

A non-qualified assignment is a transfer of payment obligations that does not qualify under IRC Section 130. Non-qualified assignments, however, do share certain similarities as well as certain differences with assignments that do qualify under IRC Section 130 ( “qualified assignments” ).

Qualified Assignments Compared

The term “qualified assignment” is defined for tax purposes by IRC Section 130. “Qualified assignment” means that the defendant or its liability insurer (1) first gives the claimant a promise to pay money in the future; (2) then transfers that obligation to a substituted obligor pursuant to IRC Section 130; and (3) thus extinguishes its contractual liability for the obligation so transferred.

IRC Section 130 places no restrictions on who may be an assignee, nor does it designate any regulatory authority for assignees.

IRC Section 130 provides that any amount received by an assignee for assuming a periodic payment obligation may be excluded from the assignee’s gross income if seven basic requirements are satisfied:

(1) The underlying tort claim involves physical injury or physical sickness.

(2) The periodic payments are excludable by the recipient under IRC Sections 104(a)(1) or (2).

(3) The assignor is a party to the suit or agreement which gives rise to the obligation.

(4) The periodic payments are fixed and determinable as to amount and time of payment.

(5) The periodic payments cannot be accelerated, deferred, increased or decreased by the recipient of the payments.

(6) The assignee’s periodic payment obligation is no greater than that of the assignor.

(7) The assignee purchases qualified funding assets (an annuity or U.S. Government obligations) that are used to fund the periodic payment obligations.

Reasons for Using Non-Qualified Assignments

In general, there are two basic reasons for using a non-qualified assignment. First, non-qualified assignments offer the ability to settle a claim and/or to fund a periodic payment obligation when neither the claim nor the obligation are excludable by the recipient under IRC Section 104(a)(1) or (2).

Examples of these types of cases include subjects as diverse as discrimination, contract disputes, non-physical injuries, punitive damage awards, sexual harassment, civil rights violations, Americans with Disabilities Act claims, environmental litigation, legal malpractice, construction defects, divorce, property disputes, pre-August 5, 1997 Workers’ Compensation, installment sales and contingent attorney fees.

Second, non-qualified assignments offer the ability to fund a periodic payment obligation using a financial product other than a “qualified funding asset” – an annuity or U.S. Government obligation. Examples include certain types of “market-based” structured settlement products.

International Companies

There is nothing theoretically problematic with a qualified assignment. However, U.S. based non-qualified assignment companies generally will be subject to applicable tax on the amount received from the entity that assigns the periodic payment obligation to the non-qualified assignee when it receives funds to purchase assets to support its long-term obligations. The United States imposes additional tax on the owner of an annuity that is a “non-natural person” under IRC Section 72(u).

As a result, almost all non-qualified assignees are “international companies ,” located “off-shore,” so they are not subject to U.S. taxation – generally as a result of a tax treaty between their country of domicile and the United States.

Nothing prevents an international company from accepting what would otherwise be a “qualified assignment” under IRC Section 130. However, under such circumstances the characterization of a “qualified assignment” would be irrelevant assuming the international company is not subject to United States tax laws.

Independent Life’s Non-Qualified Assignees

Independent Life current utilizes three different assignment companies for our non-qualified cases depending on the type of case. For all of our iStructure indexed annuity cases, including structured installment sale cases, we have an exclusive relationship with Dominion Assignment Company (Switzerland) SPC Limited.

For non-qualified assignment cases utilizing our traditional fixed annuities, Independent Life has business relationships with Structured Assignments SCC, organized under the laws of Barbados, and Kenmare Assignment Company Limited, organized under the laws of Ireland.

Each of our three assignment companies is domiciled in a jurisdiction whose tax treaty with the United Stated provides that annuities are taxable only in the country where the owner of the annuity resides.

Claimant Benefits and Requirements

A non-qualified assignment, therefore, can used by claimants (or plaintiff attorneys) who want to defer future payments from immediate income tax, but will be receiving amounts that themselves are taxable.

From the claimant’s tax perspective, a non-qualified assignment is structured and operates like a qualified assignment, except that the claimant cannot benefit from the provisions of Section 130 that allow qualified assignment claimants to be treated better than general creditors.

The financial benefits of a non-qualified assignment can be substantial. Although not binding precedent, PLR 10851-0 (June 2, 2008) confirms that, if properly devised, a non-qualified assignment will avoid immediate taxation on the gross amount paid to the assignee in the year a settlement is concluded, with periodic payments taxed instead in each year they are received by the settling claimant.

As long as the documents make clear that the claimant does not have the type of rights that would create constructive receipt or show immediate economic benefit, the amounts received will be taxable in the year actually received by the claimant.

Structured Installment Sales

Non-qualified assignments can also be utilized to defer capital gains taxation as well as ordinary income tax. Structure installment sales represent a good example and a growing market. Independent Life’s iStructure indexed annuity is proving to be an ideal funding product for this market.

A structured installment sale can be utilized for the sale of real estate or businesses or any transaction for which a traditional installment sale is permitted under IRC §453. Prime candidates to utilize installment sales include sellers with some income flexibility at the time they are selling their business or property.

For eligible transactions and appropriate sellers, the advantages of an installment sale to the seller, compared with a cash only sale, can be substantial. Their potential benefits from an installment sale can include substantial tax savings resulting from deferred taxes at capital gains rates plus additional estate planning opportunities. The concurrent potential advantage for the installment sale buyer is to negotiate a lower purchase price.

Historically, installment sales have involved a potential risk for the seller, the possibility of the buyer’s default. Although a typical installment sale might involve some form of security – a mortgage, a letter of credit, a security interest, or some other form of pledge agreement – none of these alternatives have proven satisfactory. What installment sellers want is security and tax deferral and not the burden and responsibility of reacquiring the same business or property they originally sold and loss of that tax deferral.

Several years ago, a new type of installment sale, the structured installment sale, was introduced into the marketplace. The concept originated in the structured settlement industry where life insurance companies have used assignments and guaranteed annuities since the early 1980s to provide tax-efficient solutions for recipients of personal injury cases.

Multiple life companies have offered annuity products with assignments which are applicable for installment sales. These products have combined the tax deferral benefits of traditional installment sales with the added economic strength and security of highly rated, state regulated life insurance companies.

iStructure Index Annuity

Independent Life Insurance Company (ILIC) is one such life insurance company – and we now offer a new product with added features and benefits for the structured installment sale market – the iStructure indexed annuity.

iStructure is the first uncapped indexed structured settlement annuity and its design is specifically applicable to installment sales. That means, in addition to security and tax deferral, with the iStructure indexed annuity, an installment seller can also obtain potential market-based payment growth over the installment payout period.

Offering security, tax deferral and market-based benefit growth – iStructure introduces a new era in installment sales using a non-qualified assignment that features Dominion Assignment Company (Switzerland) SPC Limited as our exclusive assignment company.

Properly agreed and documented, a non-qualified assignment is an effective means of funding an expanding range of cases and other financial obligations. New, innovative products such as Independent Life’s iStructure index annuity are encouraging structured settlement and settlement planning professionals to identify and grow new markets including structured installment sales.

* Sections of this article are reprinted with permission of Law Journal Press, a division of ALM Media, LLC, publisher of “Structured Settlements and Periodic Payment Judgments” co-authored by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert.

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Glossary of Terms

• Annuitant: the individual on whose life the annuity is purchased. Also known as the claimant, plaintiff, measuring life, employee, releasor, or injured party.
• Annuity: a contract issued by a life insurance company funding the fixed, periodic payments an individual will receive for either a lifetime or a certain period of time.
• Assignee: the third-party company, usually affiliated with a life insurance company that accepts assignment from the defendant or its liability insurer of the obligation to make the periodic payments outlined in the settlement and acts as owner of the annuity contract, in accordance with Section 130(c). Also called “Assignment Company”.
• Assignment Agreement : a legal document which transfers the obligation to make the periodic payments from the defendant’s liability insurance carrier or self-insured defendant (assignor) to a third party (assignee). The most commonly used and/or accepted are the Uniform Qualified Assignment (UQA) and Non-Qualified Assignment Agreement and Release (NQAR).
• Assignor: the defendant or liability insurance carrier that is originally responsible for the periodic payments under the settlement agreement, which assigns the obligation to make the periodic payments to the Assignee.
• Claim: facts that combine to give rise to a legally enforceable right or judicial action.
• Claimant: a person with a claim in a lawsuit. Also called plaintiff, employee, or releasee.
• Claims Adjuster: the individual who works for the defendant’s liability insurance company, a risk management pool, an “adjusting company,” or for the defendant itself and works with defense counsel to settle the claim. 
• Constructive Receipt/Economic Benefit Doctrine : income not in the taxpayer's possession but credited to their account, set apart for them or otherwise made available for them to draw upon. For example, if the plaintiff attorney has the settlement proceeds in his/her IOLTA account, the plaintiff is in constructive receipt of the settlement.
• Defendant: a person or entity being sued or against whom a claim is made. Also called respondent, insured or employer.
• Defense Attorney: the attorney who represents the defendant/employer/respondent and insurance carrier. 
• Guardian: a guardian of the claimant is responsible for the personal welfare of the individual. This can include the person’s living arrangements, medical care, education, and so forth. A Guardian of the Estate is responsible for the case and management of the individual’s property. Under normal circumstances, parents perform these roles for their minor children, in the role of “parent and natural guardian.” If payments are going to be made to a parent for the benefit of a child prior to the child’s 18th birthday, then the life insurance companies may require a copy of the court documents appointing a Guardian of the Estate of that child. A Guardian ad Litem is an attorney who solely represents the interest of a minor child or incompetent adult.
• Insurance Carrier:  a company that provides insurance on behalf of the defendant. Also called, casualty company, or excess carrier.
• Life Only Annuity:  an annuity that pays for the life of the annuitant only. Payments cease at death of the annuitant.
• Life Annuity, with Period Certain: a life annuity in which a certain number of payments will be paid whether or not the measuring life survives the entire payment schedule.
• Plaintiff: the person who initiates a lawsuit against a person or entity. Also called annuitant, claimant, or employee.
• Plaintiff Attorney : the attorney who represents the plaintiff/claimant during a legal settlement.
• Periodic Payment Act of 1982 : brought various tax rulings into statutory certainty and added Section 130 to the Internal Revenue Code, thus authorizing qualified assignments. Also known as Public Law 97-473.
• Physical Injury: an injury to a person's physical body, i.e. loss of limb, brain damage, dog bite, or bruising. These types of cases can be assigned under Section 130 and fall under Section 104(a) of the Tax Code.
• Quote:  a written proposal showing a specific benefit type, amount, cost, expiration date, and underwriting company. Also called a proposal.
• Section 104(a)(1):  section of the U.S. Tax Code which describes amounts received under Workersʼ Compensation acts as compensation for personal injuries or sickness suffered in the workplace. 
• Section 104(a)(2):  section of the U.S. Tax Code which describes the amount of any damages (other than punitive damages) received on account of personal physical injuries or physical sickness. 
• Section 130(c):  the Internal Revenue Code that describes and allows for the assignment of periodic payments to a third-party assignee. 
• Settlement Agreement and Release : a legal document executed by all parties of a lawsuit or claim stating the terms by which the plaintiff releases the defendant and/or their insurance carrier. The payments to be made by the defendant/insurance carrier, the purchase of the structured settlement, and consent language for the assignment may also appear within the document.
• Structured Settlement:  a legal settlement paid out as periodic payments rather than (or in addition to) a cash lump sum, usually with certain tax advantages for the claimant/plaintiff.
• Structured Settlement Consultant: a person who is an expert in structured settlements. He/She is licensed to sell insurance in the states where he/she practices and is appointed by the life insurance companies to specifically sell structured settlements.
• Term, or Period, Certain Annuity:  an annuity that pays out for a set amount of time. Should the annuitant die before the payments are scheduled to cease, then the remaining payments will be paid to a named beneficiary or to the annuitant’s estate if no beneficiary is listed.

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Non-Qualified Structured Settlements

FAQ’s for Attorneys FAQ’s for Injured Parties Structures are Utilized in a Wide Range of Claims Defendants are no longer limited by the IRS Code Section 130 (limited to personal physical injury torts and worker compensation claims filed after 8/5/97) as to what settlements can be assigned. Defendants can now take advantage of non-qualified structure settlements to resolve:

• Construction Defect
• Directors & Officers
• Discrimination
• Employment Litigation
• Environmental Ditigation
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• Harrassment
• Legal Malpractice
• Non Physical Injuries
• Punitive Damages
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Call a settlement expert now, top structured settlement annuity companies 2024, structured settlement annuities are only offered through licensed and appointed structured settlement consultant specialists, structured settlement brokers and settlement planners.

• Structured settlements are a specialized line of business for life insurance companies. Structured settlement annuities and/or periodic payment reinsurance are only available through licensed insurance agents appointed with structured settlement authority by the underwriting life insurance company.   An appointed agent of one of the above life insurance companies without structured settlement authority would have to go through an appointed agent or structured settlement broker with structured settlement authority.   You can easily verify if an agent or broker is licensed in your state by referring to the online records posted on the webistes of state department of insurance, or department of financial services.
• Beware that Structured Settlement Receivables {"factored structured settlement payment streams") that are offered by secondary market and tertiary market salespeople, including certain settlement planners, as "SMA", "SMIA" and "structured settlement investments", are not annuities. Such factored payments streams, properly defined as " structured settllement receivables", may not have statutory insolvency protections and have transactional risks not present with legitimate annuities.  See the 2017 revisions to the Life & Health Guaranty Association Model Act (#520) which had been adopted by 40 states as of August 2023. The National Association of Insurance Commissioners (NAIC) does not recognize acquired structured settlement payment rights as annuities or insurance products. and may be offered by people who do not hold insurance licenses who may use the term annuity or annuities  as an inducement, and/or make unauthorized use of insurer trademarked logos to mislead investors.
• An A.M. Best Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance and contract obligations. It is not a warranty of a company’s financial strength and ability to meet its obligations to policyholders. "Best's Credit Ratings™ are under continuous review and subject to change and/or affirmation. Important Notice: See Best's Credit Ratings for a disclaimer notice and complete details at http://www.ambest.com/ratings/notice."
• Financial ratings current as of the date this page was last updated. Please click on the column header for each financial rating agency to learn more about the rating process with the agency
• If you are receiving, or scheduled to receive structured annuity payments from American International Life Assurance Company of New York, and your structure was put in place prior to 7/1/2009, the assignment company would have been either American Home Assurance Company, or National Union Fire Insurance Company of Pittsburgh, PA.
• Metropolitan Tower Life Insurance Company writes annuities to fund structured installment sales in all states except New York.
• MetLife Assignment Company, Inc. offers a domestic non-qualified assignment alternative.  Payments must begin within 13 months and must be substantially equal to qualify under IRC 72(u)
• Independent Life Insurance Company began underwriting structured settlement annuities in May 2018. Independent Life became the first life insurance company to focus exclusively on the structured settlement market. Independent Life also issues annuities to fund non-qualified structured settlements, including structured installment sales and non qualified structured settlements witha  deferred start date longer thanj one year.. It is rated A by Egan Jones, which is an NAIC Tier 1 rating. See CRP Credit Rating Equivalent to SVO Designations . Independent Life Insurance Company is not related to Independent Life & Accident, which was acquired by American General in 1997 and did not write structured settlement annuities.
• USAA Life Insurance Company is not admitted in New York and therefore cannot be used where there is no qualified assignment. In circumstances that do not require court approval, where the parties seek an A++ alternative and mutually agree, USAA Annuity Service Corp will take a qualified assignment from New York Defendants or Insurers of New York defendants. 
• This web site is not endorsed by, directly affiliated with, maintained, authorized, or sponsored by any insurance or other company referenced herein. All products, services and company names are the registered trademarks of their original owners. The use of any trade name or trademark is for identification and reference purposes only and does not imply any association, sponsorship or endorsement between the trademark holder and the operators of this web site.

Last updated on April 23, 2024

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