Implementing a Structured Settlement

Once a structured settlement is agreed to by the parties:

• Selective Settlements drafts the prototype Settlement and Release outlining payment of attorneys’ fees, liens, cash to plaintiff and future periodic payment income.
• The defendant/insurer purchases an annuity or reinsurance agreement to fund the future periodic payments.
• The defendant/insurer is released from future liability and claimant receives payments from a third party under a Qualified Assignment (the defendant/insurer transfers ownership of the annuity to avoid having to show future liabilities on its books).

Guidelines for Tax Free Payments

• Structured settlements are governed by the Federal Internal Revenue Code and offer advantages to the plaintiff and defendant/insurer
• To receive favorable tax treatment, plaintiff must avoid “constructive receipt” of the funds used to purchase the annuity
  • future income payments are fixed and determinable
  • Plaintiff has no ownership of the funding device ( i.e. the Annuity)
  • Defendant/insurer is free of any future liability via the Assignment
• See more information about taxation.

Age Rating - Cost Reduction

• Plaintiff is age 42. Selective Settlements submits medical information to the annuity companies to obtain a substandard (i.e. reduced) life expectancy. Highest “age rating” received is 60
• Annual payment to plaintiff is $21,861 ($1821.75 per month)
• Annuity cost at plaintiff’s actual age is $351,885
• Cost with medical underwriting, “age rating,” to provide annuity of $1,821.75 per month – payable for life and guaranteed 20 years certain - $307,791
• Savings utilizing “age rating” - $44,094