Structured settlements arise out of a negotiated compromise (or so-called “meeting of the minds”) in which part of the settlement includes a customized schedule of future periodic payments that match the Claimant’s or Plaintiff’s needs, and the life insurance companies that will issue the structured settlement annuities to fund the payment streams. In some cases, US Treasury Funded Structured Settlements, an alternative “qualified funding asset” permissible under IRC 130(d) may be used. How structured settlements work requires knowledge of how settlements are negotiated.
A structured settlement cannot be established after constructive receipt or actual receipt has occurred (see Rev. Ruling 79-220), so regardless of which side of the case, you're on, it's a good idea to be prepared and engage the services of a structured settlement expert in advance. If a structured settlement is desired, be mindful if you are a claimant/plaintiff (or an attorney representing a claimant/plaintiff) not to sign a general release which sets forth as consideration, solely a cash amount, followed by the words "the receipt is hereby acknowledged"
These steps must occur without the Claimant/plaintiff being in
constructive receipt, or actual receipt , of the Structured Settlement Funding Amount. Once constructive receipt, or actual receipt, has occurred there can be no structured settlement.
In some instances, particularly where the damages do not qualify for the income tax exemptions under IRC Sections 104(a)(1) and 104(a)(2), one can consider solving the problem via the use of a non-qualified assignment program.
All parties involved reach agreement as to the supporting documentation necessary for the completion of the settlement. In most cases, the documents will consist of the Settlement Agreement and Release, any required court orders or probate approvals, proof of birth (if payments are life contingent. Some carriers may also require proof of birth if the claimant/plaintiff/payee is a minor), and a qualified assignment agreement.
It's important to note that the structured settlements are one component of a greater settlement planning process and that depending on the facts of a particular case, a multiple disciplinary, multiple product solution may be appropriate.
Last updated March 15, 2024
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