by John Darer CLU ChFC MSSC CeFT RSP CLTC
Prior to delivery of the annuity contract and signed qualified assignment to the parties, there should be a review:
- of the documents by the structured settlement broker (or settlement planner) to be sure that all of the terms of the structured settlement are accurately reflected in the annuity contract AND, among other things,
- that the transaction falls within the statutory guidelines set forth in IRC 130.
- Immediately prior to that, the quality control department of the life insurance company issuing the annuity should be going over the documents carefully to make sure there are no inconsistencies.
What is IRC Section 130?
Why is it Important to Structured Settlements and those that use them?
- IRC 130 is the section of the tax code that bestows a tax exclusion to the qualified assignment company for the amount received for agreeing to a qualified assignment, provided that certain conditions are met.
- IRC 130(d) deals with qualified funding assets. Pursuant to IRC 130(d)(4) such qualified funding assets must be purchased not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment. Here’s the full text of IRC 130(d):
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What are the consequences if there are inconsistencies?
One tax attorney who this author spoke to suggested that this is primarily a potential tax problem for the qualified assignee. Consider however, if the “Out Cause” in paragraph 9 (in the QA, QAR) or 12 (of the QARP), designed to protect the qualified assignee in the event it took on an assignment that didn’t meet the rules of IRC 130(c), be triggered? Could (or would) it be triggered by a qualified assignee if it found itself itself in “deep doo doo” as a result of its own quality control error? If the assembly line was a little lax over a period of time, what is the impact on that qualified assignment company and the insurer’s bottom line?
Quality control departments at all structured settlement annuity issuers must be cognizant of the potential for an IRC 130(d)(4) violation when dating the effective date on a qualified assignment.
All settlement professionals, including representatives of the annuity issuing life insurers and government bond structured settlement providers, have a professional obligation to possess a mastery of the fundamentals of their profession. It sure doesn’t get much more fundamental than IRC Section 130.
Related Reading
Qualified Assignment | Structured Settlement Key Word – Structured Settlements 4Real®Blog July 26, 2025
Structured Settlement Agreements | Avoid This Fundamental Flaw September 14, 2025
IRC 130(c) Unwind Clause in Qualified Assignments Best Practices September 22, 2025
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