Structured Settlements 4Real®Blog 2026

by John Darer CLU ChFC MSSC RSP CLTC

Can you use “recycled” structured settlements, which are properly termed structured settlement receivables to fund an obligation to make future perioidic payments?

What can be used to fund a structured settlement payment obligation?

Purportedly a Private Letter Ruling request is afoot.

Background

For the purpose of this discussion let’s assume that we are speaking about a structured settlement which represents payment of damages for personal physical injury or physical sickness. [i.e. qualifies for the income tax exclusion under IRC 104(a)(2)].

Most structured settlements are created via what is known as a qualified assignment. The following chart displays the sequence of events that take place when a typical structured settlement is created.

Step 3, the purchase of a “qualified funding asset”,  is governed by IRC Section 130(d)  which states:

1. such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,
2. the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,
3. such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and
4. such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment.

What is an income annuity contract?

• In a general context an annuity is a financial contract in the form of an insurance product according to which a seller ( annuity issuer) — typically a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-premium). Such annuities are often used for retirement and to offset or cap longevity risk.
• There is an important distinction between a regular immediate annuity (SPIA), single premoum defered annuity (SPDA) or a deferred income annuity (DIA),  and a structured settlement annuity.
• A structured settlement annuity is an annuity that can incorporate multiple types of annuity types in a single contract.
• A structured settlement annuity is not purchased by the annuitant. It is purchased by a defendant, the defendant’s insurane company, or a qualified assignment company.

Is a Structured Settlement Receivable (Acquired Structured Settlement Payment Rights) an Annuity?

• Many secondary and tertiary market promoters use the term “annuity” when pitching to investors, whether they’re attorneys, retirees, the average person with a sizable pension, or even personal injury plaintiffs. In reality, these payments are just transferred structured settlement payment rights, as defined under the Internal Revenue Code, IRC 5891(c)(2). or structured settlement receivables
• Rights can be acquired when a selling annuitant wants to sell and buying them directly (secondary market), or by way of assignment of already purchased rights (tertiary market). The transfer of rights from the original annuitant will require Court approval pursuant to the terms of structured settlement transfer acts in most states. The legal process for a structured settlement factoring transaction can take 6-8 weeks
• Selling insurance products requires an active license and appointments with individual insurers, with marketing and sales practices regulated by state law. In contrast, brokering structured settlement payment rights doesn’t require a license, and there are currently no enforceable standards for market conduct. Some brokers openly flout insurance laws that prohibit advertising guaranty funds; for example, a California broker I mentioned recently not only promotes them on his website but also refers to the vehicles as annuities. Wouldn’t want to be him.

What is a restructured settlement?

• As detailed in IRS Private Letter Ruling 200918001,  a Claimant entered into a Factoring Agreement with Corporation X , a structured settlement assignment company (Symetra Assigned Benefits Service Corporation), in which the structured settlement factoring transaction provided for the Claimant to receive a lump sum AND two subsequent payment in exchange for the rights to the payments sold. It should also be noted that the two subsequent payments under the Factoring Agreement were due to be made sooner than the due date for the payment(s) being sold.
• Under the Factoring Agreement in the PLR, Claimant has no right to a factoring payment until it is paid.
• In addition,  there is a bastardized version of language that which appears in most settlement agreements and qualified assignment agreements…”Claimant cannot accelerate or commute any factoring payment” and

“Claimant will not have any more rights to the factoring payments than a general creditor
of Corporation X. Also, Claimant has no greater rights in the factoring payments than the
Claimant had against the structured settlement payments. Corporation X represents that
Claimant could exclude the entire $z payment from income under former § 104(a)(2) had
Claimant not entered into the Factoring Transaction”. (emphasis ours)

Comment: It appears that the “subsequent payments” in the Private Letter Ruling are an obligation of the structured settlement purchaser, which in this case is the qualified assignment company that is used with structured settlement annuities issued by Symetra Life Insurance Company. The obligation under the original settlement agreement would have been guaranteed by Symetra Life Insurance Company in the event of the default of SABSCO. The PLR does not give enough information to determine whetehr such guarantee applies to the “subsequent factored payments” My guess would be no.

Recycled “Annuities” as a Putative “Qualified Funding Asset”

• IRC 130 provides a tax exclusion to the qualified assignment company taking on a deferred periodic payment obligation. The tax exclusion applies to the monies it receives from the Defendant, Insurer or Qualified Settlement Fund Trustee subject to certain conditions.
• Unless a structured settlement payment right is reclassified as an annuity, how does it meet the IRC 130(d) requirement?
• Given the time lag in obtaining Court approval of transfers, or finding assets in the tertiary market, how would a vendor be able to fill the order in timely fashion required?

Would an offshore assignment company do the trick by avoiding the constrains of IRC 130(d), namely the annuity or US government obligation parameter and the 60 day purchase rule?

Due to a tax treaty between Barbados and the United States, Barbados has been the domicile of choice for many companies used in non qualified assignments, which make tax deferral and option for taxable damage cases, or taxable elements of a personal injury case. In those cases the annuity issuer typically guarantees the performance of the offshore assignment company, Who would provide that with a “recycled structured settlement receivable”?

The National Association of Insurance Commissioners (NAIC), in its Statutory Issue Paper No. 160 (finalized April 6, 2019) opined that factored structured settlement payment streams are neither annuities or insurance products