What Are Split Funded Structured Settlements?

A Split Funded Structured Settlement is a structured settlement strategy that blends one or more companies, types of cash flows and/or product types, to help achieve a client's goals with tax advantages. Here are some examples:

Tax Advantaged Dependable Structured Settlement Income 

If you, or your loved one, are a retiree, disabled or otherwise dependent on income to pay for medical expenses or lifestyle needs, having your principal assets exposed to the ups and downs of the market can be unsettling unless you enjoy riding the financial roller coaster.  Dependng on the type of damages the payments represent, a split funded structured settlement strategy, funded with annuities, provides income tax free cash flow and principal protection through the allocation of the split annuity structured settlement into two (or more) annuity payment flows, each matching a Fixed Certain Period or Life annuity for income with a Deferred Lump Sum annuity for growth.

The Fixed Certain Period or Life structured settlement annuity can supplement your income needs today, or for retirement, by providing you with a safe, predictable and guaranteed cash flow. Income is backed by the claims paying ability of the annuity insurer. Depending on your needs, the fixed period structured settlement annuity can provide a payment stream for as many as 40 years, or your lifetime if longer. Payments can be customized in a number of different modes including weekly, bi-weekly, monthly, quarterly, semi-annual, and annual to match up top needs. Payments can be electronically deposited, directly into your checking or savings account, for your convenience. No matter what the prevailing market conditions may be, you can rest assured that your payment will never be less than you anticipated when you entered into the structured settlement. If you wish, you may also ask for a guaranteed cost of living adjustment feature (COLA), which could increase your benefits annually, or between other available time periods (depends on annuity issuer), by a fixed percentage.

Income Tax-Free Growth and Preservation of Principal

Deferred Lump Sum structured settlement annuities offer income tax-free growth and earn you an internal rate of return which is generally higher than comparable conservative financial vehicles such government bonds, zero coupon bonds, a CD, or municipal bonds. The amount of the deferred lump sum totals your principal in both the Income Portion and this Deferred Portion.

Example : Your receive $X per month for 15 Years and in 15 years you receive a single deferred lump sum payment which is calculated to reflect the return of the entire amount allocated to the structure from your settlement.

If you want to gussy it up a little bit, American General Life Insurance Company offers an Interest Rate Linked Structured Settlement annuity that can be used for the deferred portion if  you have concerns about rising interest rates.

Income Tax-Free Income, Growth and Preservation of Principal (more aggressive strategy)

For individuals with suitable risk tolerance, a more aggressive strategy might involve pairing a variable payout structured settlement annuity, or another non-annuity market based product (e.g. Assura Trust) generating periodic payments, with Deferred Lump Sum(s) funded by a traditional structured settlement annuity. The variable payout can be structured over fixed payment periods, or lifetime if longer.

By definition, the variable payout structured settlement annuity will generate income that will fluctuate to reflect the performance of units of the underlying investment accounts. The deferred , non-variable portion of the split annuity structured settlement may be scheduled to come due and be calculated to reflect the return of the entire amount allocated to both the variable and deferred portions of the split annuity structured settlement.

Ultra-Conservative Strategy

Use combinations of cash flows out of a United States Treasury Bond Funded Structured Settlement  in lieu of annuities for either the income or deferred portions of the structured settlement, or both.

Structured Settlement Payments after your Death

Generally in the event of your death prior to the end of any guarantee period, any remaining payments due to be made from your structured settlement, specifically those that are certain or guaranteed deferred lump sum payment(s), will be made, as they come due, to your beneficiaries or your estate as applicable.

Important: While structured settlement payments to a named beneficiary bypass probate, the present value of any yet to be received certain structured settlement payments, or guaranteed lump sum structured settlement payments, may be part of the calculation of the decedent's gross estate used to determine if there is any estate tax liability.

A commutation rider is as an option however, that will serve to commute remaining guaranteed payments to a lump sum upon death. A structured settlement commutation rider is useful where the structured settlement is paying into a Special Needs Trust (in some jurisdictions the commutation rider may even be mandatory in order to receive Medicaid approval), where liquidity is needed to pay estate taxes, or in circumstances where it can be anticipated that beneficiaries would not benefit from an income tax free payment stream. A commutation rider must be set up at the time of settlement is finalized. The method of calculation of present value varies by annuity issuer. Some use the cost of an annuity which, as of the date of death and based on the annuity issuer's then current rates, could fund the remaining certain or guaranteed payments. Others use a discount factor based on a published bond index.

Last updated August 14, 2023