No. The defendant, the insurer, or an assignment company must purchase an annuity to fund a structured settlement agreement and maintain the tax free status under section 104 (a) (2).
A properly configured structured settlement will provide tax-free future payments to the plaintiff. Both the principal and accumulated interest can be excluded from the plaintiff's gross income, because the plaintiff doesn't own or control the funding asset. Plaintiff's in higher tax brackets will enjoy even greater tax benefits.
Yes. A plaintiff's knowledge of the cost of an annuity used to fund a structured settlement agreement does not constitute constructive receipt, and therefore does not endanger the tax advantage.
Yes. The payments would be excluded under IRC § 104 (a)(1). Assignments are available under IRC § 130 if the claim is for workers' compensation filed after July 1, 1997 or if the claim is paid from a casualty insurer.
Yes, if a proper assignment is employed. However, liability insurers receive favorable tax treatment under other tax rules.
The virtually unanimous rule is that the contingency fee is calculated as a percentage of the cost of the funding asset for the structured settlement.
Structured settlement annuities usually return 2.5%-3.5% more than tax-free bonds. Historically structured settlement annuity yields are .5% to 1% higher than government bonds.
A structured settlement's payment schedule can use growth rates, stepped increases for monthly payments and lump sum future payments to offset inflation.
A conforming settlement and/or assignment agreement, a reliable obligor or assignment company to own the funding asset and a strong life insurance company. Increasingly, security interests are being used to increase reliability. Only highly rated life insurance companies and United States government obligations are approved for the funding vehicle.
A rated age is hypothetical age given to a person with a reduced life expectancy for purposes of pricing an annuity. A person may have a chronological age of 20, but due to a severe medical condition, be treated for pricing purposes the same as a 50 year old. This means a medical actuary at a life insurance company has determined that the person has the same mortality risks as a 50 year old.
Injuries, illnesses and other serious medical conditions may reduce an individual's life expectancy. The amount of the life expectancy reduction depends upon the severity of the health problem and the experience of the actuaries evaluating the case. A reduced life expectancy is common among people with spinal cord injuries, brain damage, heart disease, and cancer, among other conditions. A preexisting medical condition can also be considered to reduce the claimant's probability of survival.
A qualified assignment is an assignment conforming to IRC § 130. It transfers the obligation to make the periodic payments from the defendant or its insurer to an assignee company. The assignee company is usually related to a life insurance company. The assignee company typically purchases an annuity from a related life insurance company. The assignment normally releases the defendant from all future obligations, although this is not a requirement of the tax law.