by John Darer CLU ChFC MSSC CeFT RSP CLTC
Proper documentation of consideration is critical when there are future structured settlement payments
One critical component of structured settlement documentation, worthy of your full attention, is the 
“promise to pay” or “agreement to pay” periodic payments as consideration. Without it the structured settlement and the qualified assignment is potentially defective.
” The Defendant will fund the Purchase of…” is not adequate consideration
Some boilerplate documents suggest that the consideration is that “the defendant will fund the purchase of annuities at a cost not to exceed $XXX,XXX.XX”. Now consider that in the same document there is generally a paragraph authorizing the defendant to make a qualified assignment. In that paragraph there is a generally a sentence that says the qualified assignee’s obligation is no greater than the obligation of the defendant or insurer prior to the assignment.
Important Questions for Consideration
- Can you assign something that you have no obligation to do? The qualified assignment agreement refers to an obligation or liability to make future periodic payments. What if there is none expressly stated in the settlement agreement?
- If the defendant’s obligation is only to fund the purchase of the annuities and the qualified assignee’s obligation is limited to that of the defendant or insurer prior to the assignment, where does that leave the plaintiff? Where does that leave the qualified assignment if it slips through?
- Please refer to IRC 130(c), the section of the Internal Revenue Code that states in pertinent part (highlighted), “For purposes of this section, the term “qualified assignment” means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen’s compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)?
A defective Qualified Assignment may have serious ramifications, so it’s important to get it right
Defense lawyers who are sheepish on this issue may want to borrow this quote for a little “good faith CYA”:
“He who is most slow in making a promise is the most faithful in performance of it.” Jean Jacques Rousseau, French philosopher (1712-1778)
Last updated April 14, 2024
Leave a Reply