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: Structured Settlements 4Real

Alarming Number of Attorneys Unwittingly Exposing Their Clients By Not Having Fundamental Understanding of Structured Settlement Documents; Some Settlement Consultants Too!

By John Darer

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I have to say I am alarmed at the number of attorneys and even some settlement consultants that I encounter who appear to lack a fundamental understanding of structured settlement documents. The affliction appears to affect both sides of aisle.

When reviewing a release where a structured settlement is an intended component, it is critical to examine how the consideration for the settlement is characterized. For one, the consideration for the structured settlement is the obligation to pay the periodic payments NOT the cost to fund the obligation. Yet some defense attorneys and.or their structured settlement brokers are preparing documents just like that. The cost can be described elsewhere in the document.

The importance of clearly stated consideration smacks one in the face when one reads the express language of Internal Revenue Code Section 130(c) together with Paragraphs 1 and 3 of the Model Qualified Assignment Release and Pledge Agreement ("Model QARP") excerpts of which appear below. It is abundantly clear that the qualified assignment is all about the assignment of a liability to make Periodic Payments NOT a liability to fund an annuity. Furthermore Paragraph 3 of the Model QARP states that the assignee takes on no liability other than the Periodic Payments

As my one time mentor asked me, "if there is no periodic payment obligation defined in the release as consideration, what is there to assign?"

Maybe your structured settlement broker says the qualified assignee for the annuity issuer life insurance company will take it (without consideration properly reflected), or perhaps they won't notice. Think you're safe? Think again.

Paragraph 9 of the standard QA and QAR or Paragraph 12 of the Model QARP provide that the assignment CAN BE UNWOUND IF IRC 130(c) IS NOT SATISFIED, OR THE AGREEMENT IS TERMINATED BY A COURT OF LAW. Think it would never happen?

If the assignment unwinds plaintiff is no longer a secured creditor and the annuity is owned by the assignee. Some defendants try to bamboozle the plaintiff into having the qualified funding asset transferred to the payee if the assignment unwinds. Not a good scenario.

With settlement consultants increasingly relying on third parties and shared assistants to do their settlement papers it's important to be schooled in the fundamental paperwork, even if you are not doing the paperwork so that you can articulate it to the clients. Attorneys... keep your head out of the sand!

IRC 130(c) Qualified assignment

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)???

(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen???s compensation claim, and

(2) if???

(A) such periodic payments are fixed and determinable as to amount and time of payment,

(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,

(C) the assignee???s obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and

(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (2) of section 104 (a).

The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor.

Standard Paragraph 1 of the Model Qualified Assignment Release and Pledge

Assignment and Assumption; Release of Assignor. Assignor hereby assigns to Assignee, and Assignee hereby accepts and assumes, all of Assignor???s liability to make the Periodic Payments. Releasor hereby accepts and consents to such assignment by Assignor and assumption by Assignee. Effective on the Effective Date, Releasor hereby releases and discharges Assignor from all liability to make the Periodic Payments.

Standard Paragraph 3 of the Model Qualified Assignment Release and Pledge

Extent of Assignee???s Liability. Assignee-Debtor???s liability to make the Periodic Payments shall be no greater than the liability of Assignor immediately prior to the Effective Date. Assignee assumes no liability other than the liability to make the Periodic Payments. Assignee???s liability to make the Periodic Payments shall be unaffected by any bankruptcy or insolvency of Assignor.