by John Darer CLU ChFC MSSC CeFT RSP CLTC
A Qualified Assignment is not a Pickled Pepper
A settlement planner really “picked a peck of pickled peppers” in articulating a qualified assignment
One of my industry colleagues has momentarily gone Peter Piper in his explanation of qualified assignment published earlier this month. To wit…
“In a personal injury case, the plaintiff may settle for a lump sum amount in principle, and then arrange to have a portion of the settlement dedicated to an income strategy. This 0bligation becomes part of the original settlement, and in order for the tax exemption on all “earnings” to work, the obligation is assigned. The assignee is payed (sic) to assume the obligation, holds settlement funds after the defendant settles and creates a periodic payment obligation“.
From the plain reading of this it appears that the settlement planner is saying:
- Plaintiff settles for a lump sum.
- Arranges to have a portion of settlement dedicated to an income strategy
- THAT is an obligation that becomes part of the original settlement. BUT
- In order for the tax exemption on all “earnings” to work, the obligation is assigned
- THEN, the assignee is paid to assume the obligation, holds the funds and creates a periodic payment obligation
The Real Deal When a Structured Settlement is Established
- When a structured settlement is established, a periodic payment obligation is created in the settlement agreement and release.
- It is not necessary for there to be a qualified assignment for the tax exemption on all “earnings” (for the plaintiff) to work. Although a qualified assignment is used in the majority of personal injury structured settlements, it is not the exclusive method. Another less common method is a so-called “buy and hold”.
- The assignee does not “hold the funds”. The assignee deducts its assignment fee and pays the balance over to the life insurance company issuing an annuity as ” qualified funding asset”, or to the trust company that is the fiduciary holding treasuries as part of a Treasury Funded Structured Settlement
- Needless to say at this point, the assignee DOES NOT create a periodic payment obligation, the assignee assumes a periodic payment obligation
A Medical Malpractice Settlement Tongue Twister
- If one doctor doctors another doctor, does the doctor who doctors the doctor doctor the doctor the way the doctor he is doctoring doctors? Or does he doctor the doctor the way the doctor who doctors doctors?