what is qualified assignment

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What is a qualified assignment?

A qualified assignment is a formal arrangement wherein a defendant or its insurance company or other representative agrees to transfer their obligation to make future periodic payments to a third party (“an assignment company”)..

When a settlement is reached that involves future payments to the claimant, the defendant and its insurers typically anticipate meeting the obligation to make the future payments with a structured settlement annuity. Structured settlement annuities typically require qualified assignments. A qualified assignment is a formal arrangement wherein a defendant or its insurance company or other representative agrees to transfer their obligation to make future periodic payments to a third party (“an assignment company”).  This is generally done using a uniform qualified assignment (“UQA”) document. The UQA is designed to meet the requirements of IRC Section 130, which is the section that determines what cases qualify for an immediate tax deduction for the payor after making a third party assignment. Among these requirements are:

• The assignee assumes the liability from a party to the suit or agreement;
• The payments are fixed and determinable;
• The payments cannot be accelerated, deferred, increased or decreased, or otherwise changed after the agreement is reached;
• The assignee's obligation is no greater than that of the assignor;
• The periodic payments are excludable from the recipient's gross income under Section 104(a)(2), and, for settlement of filed workers compensation claims on or after 8/5/97, Section 104(a)(1);
• The injury must be a physical sickness or injury;
• A qualified funding asset must be purchased.

The UQA identifies the parties involved and makes clear the schedule of future payments required by the claimant in the form of an addendum. Once the UQA is signed by both parties the claimant agrees to release the original defendant from further liability. After paying the agreed premium to the assignment company, the defendant is released from the claim and it can take a tax deduction for the payment and go about its business without the burden of the liability for future payments.  

In order to implement qualified assignments, insurance companies participating in the structured settlement market set up assignment companies that will accept the assignment and subsequently purchase the annuity. Usually these companies do nothing but assume the obligations of defendants and hold qualified funding assets. The assignment company is typically associated with the issuing life insurance company. A structured settlement annuity is purchased from the related life insurance company as a qualified funding asset.  The assignment company, not the payee, then owns the contract for the duration of the contractual period.

Qualified assignments are an integral part of a structured settlement and thus should always be reviewed by experts to ensure proper execution.

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After a settlement is reached and reduced to writing in a settlement agreement, the defendant can “assign” its obligation to pay any future payments to the plaintiff. This assignment is made to an entity called an assignment company to meet its obligations.

During the assignment process, the defendant must transfer the applicable settlement monies to the assignment company, after which both parties must sign a Uniform Qualified Assignment contract.

Understanding Qualified Assignments

An assignment is considered a “qualified assignment” if the settlement proceeds are excluded from income taxes under IRC §104a(2). To be excluded, the proceeds must be for compensatory damages from a case involving physical injury or illness.

IRC§130(c) states that payments can be made in the form of future periodic payments as long as:

• Cash flows are fixed and determinable
• Cash flows cannot be accelerated, deferred, increased, or decreased

Upon assignment of the obligation from the defendant to the assignment company, the defendant is released from further liability and administrative duties.

The Benefits of Qualified Assignments

From the plaintiff’s perspective, an assignment to a financially secure insurance company gives them the assurance that future payments will be made as promised . For many plaintiffs, this assignment to the life company alleviates the stress of future contact with the defendant, their insurer, or any party responsible for the injury.

From the defendant and/or their insurer, an assignment relieves the defendant of further compensation and responsibility. The defendant and/or their insurer are able to write just one check to the assignment company for the defendant’s liability, take the corresponding tax deduction, and transfer administrative duties and payment responsibilities to a third party (the life company and their assignee).

Learn more by contacting ROBINYOUNG & COMPANY.

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What’s the Difference Between Qualified vs. Non-Qualified Settlements?

What is the difference between a “ qualified ” structured settlement and a “ non-qualified ” structured settlement?

When describing a structured settlement, the terms “ qualified ” and “ non-qualified ” generally refer to “ assignments ” and IRC Section 130. The primary tax difference, from a structured settlement recipient’s perspective, is that “ qualified ” structured settlement periodic payments are excluded from income tax whereas “ non-qualified ” structured settlement periodic payments are deferred until actually received.

The term “ qualified assignment ” is defined for tax purposes by IRC Section 130. “ Qualified assignment ” means that a defendant or its liability insurer first gives the claimant a promise to pay structured settlement periodic payments in the future; next transfers that obligation to a substituted obligor pursuant to IRC Section 130; and thereby extinguishes its contractual liability for the obligation it transferred.

IRC Section 130 provides that any amount received by an assignee for assuming a periodic payment obligation may be excluded from the assignee’s gross income so long as seven requirements are satisfied:

• The tort claim involves personal physical injury or physical sickness;
• The periodic payments are excludable by the recipient under IRC Section 104(a)(2);
• The assignor is a party to the suit or agreement which gives rise to the obligation;
• The periodic payments are fixed and determinable as to amount and time of payment;
• The periodic payments cannot be accelerated, deferred, increased or decreased by the recipient of the payments;
• The assignee’s periodic payment obligation is no greater than that of the assignor; and
• The assignee purchases qualified funding assets (either annuities or U.S. Government obligations) to fund the periodic payment obligations.

Although IRC Section 130 does establish any restrictions on what types of companies or legal entities may serve as assignees, most qualified assignments are funded with life insurance annuities and the assignees are almost always affiliates of the life insurance companies that issue those annuities. For example, Independent Assignment Company serves as the assignment company for all of Independent Life’s qualified structured settlement assignments.

Qualified Assignments can also be made out of an IRC Section 468B  Qualified Settlement Fund (QSF)  and can be utilized to fund structured attorney fees for tort cases that involve personal physical injury or physical sickness – whether or not the claimant decides to structure his or her settlement.

Not all settlements involve tort claims, however, and not all tort claims involve “ physical personal injury or physical sickness ” – which is one of the requirements of IRC Section 130.

A “ non-qualified assignment ” represents the transfer of a structured settlement periodic payment obligation that does not qualify under Section 130 of the Internal Revenue Code. This means the assignee is subject to applicable taxation on the amount it receives from the defendant or liability insurer that assigns the structured settlement periodic payment obligation when it receives money to purchase the annuity(s) to fund the obligation to the claimant.

“ Non-qualified assignments ” therefore allow litigating parties the ability to settle a claim and to fund a periodic payment obligation using a “ Section 130-like ” transfer when neither the claim being settled nor the agreed periodic payments qualify for treatment under IRC 104(a)(1) or Section 104(a)(2). Unlike “ qualified ” structured settlement cases, however, the income taxation on these “ non-qualified ” structured settlement periodic payments are deferred rather than excluded.

There are many types of cases that may be resolved through non-qualified structured settlements such as:

• Employment disputes
• Wrongful termination
• Psychological/emotional harassment
• Sexual harassment
• Attorney fees
• Wrongful incarceration
• Punitive damages

An assignee of a non-qualified assignment based in the United States will be subject to corporate income tax on any funds paid to it in exchange for assuming assignee obligations. For this reason, companies offering “ non-qualified ” assignments typically utilize non-domestic assignment companies.

Independent Life is one of the few structured settlement annuity providers that offers both “ qualified ” and “ non-qualified ” structured settlements.  For “ non-qualified ” cases, we leverage the strength and market recognition of two non-domestic assignment companies,  Structured Assignments  (SAI) of Barbados and  Kenmare Assignment Company Limited  (Kenmare) of Ireland. By utilizing an offshore assignment company, Independent Life can offer fully customizable payout patterns of fixed and guaranteed payments to settlement planners and their claimants including deferred, lump sum, fixed period or lifetime payments.

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Any discussion of taxes herein is for general informational purposes only and does not purport to be complete or cover every situation. Independent Life, its affiliates, its distributors, and its and their respective representatives do not provide tax, accounting, or legal advice. You should confer with your qualified legal, tax and accounting advisors based on your particular circumstances. All guarantees are obligations of Independent Life Insurance Company.

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What’s of Difference Between Qualified vs. Non-Qualified Settlements?

What exists the difference between ampere “ qualified ” structured settlement press a “ non-qualified ” structured settlement?

When describing a structured settlement, the terms “ qualified ” plus “ non-qualified ” generally refer to “ assignments ” and IRC Section 130. And primary tax difference, from a structured settlement recipient’s perspective, is that “ qualifications ” structured settlement periodic payments are excluded from salary tax whereas “ non-qualified ” structured settlement periodic payments are deferred until actually received.

The term “ qualified assignment ” shall defined for tax purposes by IRC Section 130. “ Qualified assignment ” means that a defendant or its burden underwriter firstly gives to claimant a promise for pay structured residence periodic payments in the future; next transfers that duty to a substituted obligor pursuant to IRC Section 130; also thereby removed its contractual liability for the obligation computers transferred.

IRC Section 130 provides that any amount received by an assignee for unterstellend a recurring payment obligation may be excluded coming the assignee’s grossness income to long as seven requirements are satisfied: Non-Qualified Structured Settlements | Atlas Settlement Set | Structured Settlements Planning & Brokerage

• The tort claim involves personal physical injury or physical sickness;
• The periodic payments represent excludable by the recipient under IRC Section 104(a)(2);
• The transferor is a party to the suit oder agreement which gives rise to the obligation;
• The periodic payments are fixed and determinable as to amount and time of payment;
• The periodic expenditures cannot be accelerated, postponed, increased or decreased by the recipient of the payments;
• One assignee’s periodic payment obligation will nay better than that of the assignor; real
• The assignee purchases qualified funding assets (either annuities or U.S. Government obligations) to fund the periodic payment obligations.

Although IRC Querschnitt 130 does establish some restrictions on what genre is companies or legal bodies may serve as assignees, most qualified assignments are funded with life insurance annuities and the acceptors are almost ever affiliates of the life insurance companies the issue those annuities. For example, Independent Assignment Company serves as the assignment corporation by all of Autonomous Life’s highly structured settlement missions. Non-Qualified Structured Comparisons | Savant Settlement Consulting

Qualified Assignments can also be made out a to IRC Segment 468B  Qualified Settlement Fund (QSF)  and can be utilized to back structured attorney fees used illegal cases that involve personal physical injury or physical sickness – whether or did the claimant decides to structure your with her settlement.

Not all settlements involve tort claims, however, and not all tort claims involve “ physical personal injury or physical sickness ” – which is one of the requirements of IRC Piece 130.

AMPERE “ non-qualified assignment ” represents to transfer of one structured clearing cyclical payment obligation which does not qualify under Segment 130 of the Internal Revenue Code. This mean the assignee is your to applicable accounting on the amount it receives with the defendant or liability assurer that assigns the integrated settlement periodic payment obligation when it receiver money for purchase of annuity(s) to fund the obligation to the claimant.

“ Non-qualified assignments ” therefore allow litigating parties the ability to settle an claim and to fund an periodic payment obligation using adenine “ Section 130-like ” transfer when either the claim exist settled nor the agreed periodic payments qualify fork processing under IRC 104(a)(1) or Section 104(a)(2). Unlike “ qualified ” structured settlement cases, however, the generated taxation on these “ non-qualified ” textured settlement periodic cash are deferred rather about excluded.

There are numerous classes of cases that may be removed via non-qualified built settlements such as:

• Employment disputes
• Wrongful termination
• Psychological/emotional harassment
• Sexual harassment
• Barrister fees
• Wrongful correctional
• Punitive damages

An assignee of a non-qualified allocation based in the United States will be matter to corporate income tax on random funds paid to it in exchange for assuming assignee obligations. For such reason, businesses service “ non-qualified ” assignments typically utilize non-domestic appointment companies.

Self-sufficient Life is one of this few structured settlement annuity providers that offers both “ qualified ” the “ non-qualified ” structured settlements.  For “ non-qualified ” cases, we leverage the solid and marktplatz recognition of second non-domestic assignment companies,  Systematic Assignments  (SAI) of Tropical and  Kenmare Assignment Company Small  (Kenmare) of Ireland. By utilizing an ocean-based assignment company, Independent Life can offer fully customizable payout prototypes of fixed the guaranteed remunerations to settlement planner real their claimants includes defer, lump whole, fixed period or lifetime payments.

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Any discussion of taxes herein is for general informational purposes all and makes not porto until be complete or cover every situation. Free Life, its affiliates, its distributors, and its and their respective representatives execute not provide tax, accounting, or legal advice. You should confer in your able legal, tax and accounting advisors based on your particular facing. All warranty are obligations of Independent Life Insurance Company.

Thing is a Qualified Assignment?

Why most underwriter won't construction absent one.

What is ampere qualified assignment with a structured settlement?

A qualified assignment enables a Defendant, Insurer, conversely Qualified Settlement Fund, to achieve a complete novation of the future periodic payment complaint when ampere structured settlement is established, through a substitution of obligors.  This is important to Accused, or Insurer because the total payments starting a structured settlement will exceed the cost of the structured settlement.  A structured settlement is an useful settlement tool for all parts, but without a qualified assignment the Defendant otherwise insurer has contingent liability in the incident of liquidation of the annuity issuer that could exceed the payment funding amount. 12-2901 - Definitions

A qualified assignment is a transfer of a contractual obligation for make future periodic payments, which satisfies the demands of Internal Revenue Code (IRC) §130. In a built settlement accord, the original obligor (the defendant, insurance carrier for which suspended, or the trustee of an IRC 468B skilled settlement fund), assigns its obligation to make the future recurrent payments defined in the settlement agreement to a "qualified assignment company". Provide your claimants with a tax-advantaged search that turns their settling to ampere guaranteed stream a income, protected from market volatilization.  

Today he is very unique that a structured settlement is conventional as part in a personal injury, wrongful deaths or workers compensation settlement out a qualified assignment. Structured communities: An introduction. A lump whole recovery used to be the ordinary are individual trauma cases. The injured claimant will faceless.

Only payments which show damages for personal injuring, physical sickness, wrongful death and payments for workers compensation may be allotted via a qualified assignment. Settlements That Is Made For Last | MetLife Retirement & Income Solutions

Qualifications Assignment in the Internal Generated User

According to IRC 130(c) , the term " qualified assignment " means whatsoever associate of a coverage in make periodic payments as damages (whether by suits oder agreement), or as  compensation  under any workmen’s  compensation  on account of personal injury or disorder (in a case involvement bodily injury or physical sickness)—

(1) if the assignee assumes such liability from a person who is a party to the suit or agree, other the workmen’s  ausgleich  claim, and

(2) if —

(A) as periodic payments are fixed and determinable as to amount real time of making ,

(B) such periodic payment cannot being accelerated, deferred, increased, or decreased by the receivers of so payments,

(C) the assignee’s verpflichtend on accounting of the personal injuries or complaint is no greater than the obligation of to person who assigned the release, and Qualified vs. Non-Qualified Assignments: What Do They Mean for Settlement Proceeds? - Traci Kaas

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

The determination for purposes in this chapter of when the recipient is treated such having received any payment with respect up which there has been a  qualified assignment  shall be made without regard to optional provision of such assignment which subsidy the recipient rights as ampere payment greater easier those of a general creditor. In-house Revenue Service

(d) Qualified funding asset

For specific of such section, the term “ specialized funding value ” means all annuity drafting issued by a company licensed to do business as an security group below the legislation is any State, or anywhere obligation of the United Conditions, if—

(1) how annuity contract or obligation is used by the assignee to funded occasional how under any  highly assignment ,

(2) the periods of the payments from the annuity contract or obligation are reasonably related to the periodic payments under the  specialized assignment , plus the amount of any such payment go the contract oder obligation does no go the periodic payment to which it relates,

(3) such annuity contract or obligation shall designated through the taxpayer (in such manner than the Secretary shall by regulations prescribe) as being taken into account under this unterteilung with respect to such  qualified assignment , and

(4) like annuity contract or obligation the earned by the taxpayer not more than 60 period before and date to the  certified assignment  and not late for 60 days after that date starting such assigned.

Does " fixed and determinable" mean that payments been fixed at ampere certain amount and cannot change?

The IRS has finished within several Confidential Letter Adjudication over two decades, obtained by structured settlement annuity deliverers in sustain of product origination, that Non-Qualified Structured Settlements | Sages Settlement Consulting fixed and determinable could be based on an objective formula

In IRSA PLR-202127039 (published July 9, 2021) in response to a request from Habitant General Life Insurance Company in support of its Interest Linked Structured Deal Annuity, the IRS ruled:

• To periodic Subject Payments from damages that Minor will receive are fixed and determinable as to sum and time of payment within the importance of § 130(c)(2)(A) even though they are calculated pursuant into an objective quantity based on the performance of 10-year United States Exchequer Relationship Yield Rate. Structured Settlements the Qualified Duties: Whereby federal tax ... In addition, of other requirements of § 130(c) need also been met. Accordingly, the assignment enter into pursuant to the Assignment Agreement is an qualified appointment under § 130(c).

 2.   The Annuity purchased until to Assignee proficient as one qualified funding asset see § 130(d).

In IRS PLR 201435006 (published on May 29, 2014) with show to a request to Placid Life to support its Index Linked Annuity Payment Adjustment Rider (ILAPA), the IRS controlled that:

1. This cyclic installments of damages that Claimant will receive be fixed furthermore traceability than go amount and time of payment within and meant of § 130(c)(2)(A) even though they are calculated pursuant toward an objective formula based on the performance of the S&P 500 Index. At a comes toward placing settlement proceeds or advocate fees int an annuity, claimants and attorneys may find themselves confused about the fax significant associated with […]

2. The Structured Settlement Indexed Annuity which Assignee will acquire away either Issuer 1 instead Issuer 2 will not collapse to qualify as a qualified funding plant under § 130(d) solely until background of annuity’s variable expenditures.

3. The possibility of a commutation of Claimant corresponds to which Notice of Adverse Conversion will did affect whether one structured settlement appointment satisfies the requirements of a qualified mapping from § 130(c). A capable assignment lives single of the process to establish ampere structured statement that enables a Defendant, Insurer, or Qualified Settlement Financing, to achieve a complete novation of that future periodic payments claim established by weiter or agreements, through a substitution of obligors.

4. This annuity acquired by Assignee becoming not fail to be a qualified funding asset under § 130(d) by reason to which Notice of Hardship Conversion.

In PLR 199943002  (1999), obtained of MetLife to support a vary annuity structured arrangement product she was introducing, the IRS concluded:

I1. Aforementioned periodic payments of damages so Claimant will receive are fixed and determinable as to amount and time of payment under § 130(c)(2)(A) even nevertheless they are calculated pursuant until an objectives formula based on the performance on the Standard & Poor’s 500 Stock Index and/or a mutual bond portfolio designed to achieve long-term growth of capital and moderate current income; RCW 19.205.010: Definitions.

2. The annuity Assignee will acquire from Issuer willingly cannot fail to qualify as a qualified funding asset under § 130(d) solely by reason of the annuity’s variable payouts, which are pretty related to the periodic payments under to qualified assignment; additionally 3. Claimant’s physical possession of the annuity exclusively to perfect, on applicability state law, a security interest is the annuity used to fund the periodic payments will does cause Claimant to receive income in the year Claimant takes possession of to annuity contract while the defendant's subscription to Assignee is one qualified assignment available § 130(c).

What is a qualified assignment company?

Generally, a qualified assignment company is adenine special purpose company, which does little more less hold integrated settlement annuities or United States Storehouse obligations as a "qualified funding asset" to back up which cyclically payout commitments it assuming coming Defendants, Insureds or qualified accounting subsidize administrators/trustees. A qualified assignment company  may  actually will an insurance company itself, but most qualified assignation companies are not insurance companies. When an annuity is used as an certified promotion property, the qualified assignment our a usually related to the life insurance company issuing the structured settlement annuity. In such cases, the skill assignment company typically purchases an annuity from the connected lives insurance your as a skill funding asset pursuant to IRC 130(d). (1) "Annuity issuer" signifies einen insurer so has issued a sign to fund periodic ... a structured account agreement or a qualified assignment agreement.

Types of Experienced Assignment Agreements

1. Qualifies Assignment (QA)

ADENINE law instrument executed by Defendant, Insurer or Qualified Settlement Fund Manager and Qualified Assignment Company

Including referred to as a two-party qualified assignment. 

2. Qualified Assignment and Release (QAR)

A legal instrument perform by Defendant, Insurer with Qualified Settlement Fund Trustee, Qualified Assignment Company and Releasing Party. Also refered to as a three-party skilled assignment

3. Qualified Assignment Release and Pledge (QARP)

AMPERE statutory instrument executed by Defendant, Insurer alternatively Qualified Settlement Fund Trustee, Qualified Assignation Company and who Claimant-Secured Party. Used where there is adenine desire into give which payee a security equity in who annuity contract. 

Whichever Qualified Assignment Arrangement go Use?

While this QA works, e be no longer the standard from practice. While it affects the plaintiff, the QA's two-party operation is not inclusive are the plaintiff.  It is between the insurer plus the assignment company. Includes the next two options, the QAR and QARP a plaintiff signature furthermore review is necessary.

Important Observe

Where the Claimant-Secured Party your different than the Cathartic Party can fresh signature on the QARP could is required.

For demo, a minor plaintiff who will be grown when payments become made but is represented via a mother or guardian toward the time to settlement. Another exemplar could be where the payee is a Special Needs Trust (Supplemental Needs Trust, in New York), and the trust is the secured party, but that plaintiff is releasing the submit

The following video about structured settlement documentation may breathe helps for those who wish to learn more. We also encouraged readers to call is at 888-325-8640.     Last updated Month 3, 2023

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Call a settlement expert now, structured settlements with inclusive qualified assignments.

The purpose of a qualified assignment, the standard practice since the Periodic Payment Settlement Act of 1982, signed into law by President Reagan in January 1983, is to shift obligations to make future periodic payments from the Defendant, or his/her/its Insurer, to the qualified assignment company.  See 26 U.S. Code § 130 - Certain personal injury liability assignments

Why is a Qualified Assignment Even Necessary or Desired?

While they are generally willing to facilitate a structure, given that the total payout on a structured settlement will exceed the structured settlement funding amount, few Defendants or Insurers want to retain the contingent future periodic payment liability on their books. Neither would a qualified settlement fund trustee. A qualified assignment enables the Defendant or Insurer, or QSF trustee, to get a novation, with the qualified assignment company substituted as the obligor of the future periodic payments.  See flow chart at the bottom of the post.  Steps 2 and 3 show how a qualified assignment fits into the process of establishing a structured settlement.

A qualified assignment is battle tested. See Yerkes v. Cessna Aircraft Co., Civil Action No. 14-cv-05925 (D.N.J. Jun. 25, 2015).  In short, Yerkes entered into a structured settlement was established in the 1980s as part of the settlement of an air crash case when Yerkes was a teenager. The periodic payment obligation was assigned by way of a qualified assignment to junk bond fueled First Executive Corporation. Then the structured settlement annuity was funded with junk bond fueled Executive Life Insurance Company of New York (ELNY) that was liquidated in 2013. As a result, some annuitants, including Yerkes, suffering shortfalls. Yerkes' attempt at recovering from the Defendant he had released in the 1980s and its London Market insurers failed.  Yerkes has an action against his personal injury lawyers pending at the time of posting.

Inclusive Qualified Assignments

There are three types of Qualified Assignments

• Qualified Assignment (QA)                                         NOT INCLUSIVE
• Qualified Assignment & Release (QAR)                    INCLUSIVE
• Qualified Assignment Release & Pledge (QARP)     INCLUSIVE

All three forms of qualified assignment work in terms of substitution of obligors. In the context of this discussion about qualified assignments, the term "inclusive" refers to forms of qualified assignment that the plaintiff signs and is a party to.    The use of the non-inclusive QA has not been the standard business practice in the structured settlement industry for many years. The requirement of the Plaintiff’s signature on the QAR or QARP means that the Plaintiff or Plaintiff’s representative can proofread and review the document before signing. As such it is an inclusive humanistic business practice that increases the trust in the transaction. At the very least the plaintiff has the opportunity to review the final document before signing.  

Plaintiff and Defense oriented consultants often say "it is all about the plaintiff" in their messaging.  While many settlement consultants regularly use the QAR or QARP, there are some consultants, including plaintiff consultants in conjunction with their staffs, who are surprisingly still using the QA.  And it just may cause a problem one day if there is an error on the document that the plaintiff may have caught had they been given the opportunity to review the document and acknowledge with a signature, such as is required on the QAR and QARP.

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26 U.S. Code § 130 - Certain personal injury liability assignments

Any amount received for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of any qualified funding assets .

A prior section 130 was renumbered section 140 of this title .

1997—Subsec. (c). Pub. L. 105–34, § 962(a)(1) , inserted “, or as compensation under any workmen’s compensation act,” after “(whether by suit or agreement)” in introductory provisions.

Subsec. (c)(1). Pub. L. 105–34, § 962(a)(2) , inserted “or the workmen’s compensation claim,” after “agreement,”.

Subsec. (c)(2)(D). Pub. L. 105–34, § 962(a)(3) , substituted “paragraph (1) or (2) of section 104(a)” for “section 104(a)(2)”.

1988—Subsec. (c). Pub. L. 100–647 , in par. (2), redesignated subpars. (D) and (E) as (C) and (D), respectively, struck out former subpar. (C) which provided that the assignee does not provide to the recipient of such payments rights against the assignee which are greater than those of a general creditor, and as concluding provisions, inserted at end “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.”

1986—Subsec. (c). Pub. L. 99–514 inserted “(in a case involving physical injury or physical sickness)”.

Pub. L. 105–34, title IX, § 962(b) , Aug. 5, 1997 , 111 Stat. 892 , provided that:

Pub. L. 100–647, title VI, § 6079(b)(2) , Nov. 10, 1988 , 102 Stat. 3710 , provided that:

Pub. L. 99–514, title X, § 1002(b) , Oct. 22, 1986 , 100 Stat. 2388 , provided that:

Pub. L. 97–473, title I, § 101(c) , Jan. 14, 1983 , 96 Stat. 2606 , provided that:

What are the Benefits of Non-Qualified Assignments?

Many types of tax-free structured settlements are commonly used for paying damages in physical injury cases. However, recently, there has been an emerging market for an alternative settlement solution: non-qualified assignments.

What is a non-qualified assignment?

A non-qualified assignment is a settlement tool that involves a transfer of future periodic payments and obligations arising from the dispute settlement from the defendant or its carrier to a third-party assignee. In other words, it is a settlement that uses future periodic payments to receive taxable damages in a tax-efficient way.

With a non-qualified assignment, the assignee accepts the assignment and assumes the future payment obligation. As a result, the defendant and the carrier are fully released from the future periodic payment obligations.

A non-periodic assignment can benefit settlements not eligible for the Internal Revenue U.S. Code § 130: qualified assignments.

What Cases are Eligible for Non-Qualified Assignments?

Non-qualified assignments can be helpful in a variety of cases. For example, it is a valuable tool for settlements arising from non-physical injury cases such as discrimination and psychological and emotional damages.

Non-qualified assignments are also helpful for worker’s compensation cases dated pre-August 6, 1997. While the IRS has stated that post-August 6, 1997, cases do qualify under section 130, any cases that pre-date that are eligible.

Non-qualified assignments are also helpful for divorce cases and long-term disability settlements.

Benefits of Non-Qualified Assignments?

There are several benefits of using non-qualified assignments.

First, non-qualified assignments associated with a structured settlement provide a negotiation tool that bridges the gap between an offer and a demand and gives cases the potential to sell more quickly.

Also, non-qualified assignments offer a way to customize payment streams to meet the financial needs of the payee. For example, payments can be set up to coincide with certain major life milestones. They can be made in weekly, monthly, and annual payments, so they are very flexible. They can also include a cost of living adjustment (COLA) to offset the impact of inflation.

Thirdly, non-qualified assignments are a way to transfer the burden from the payee.

Finally, non-qualified assignments offer a tax advantage. For example, electing to receive periodic payments before settlement provides an opportunity to receive tax-efficient income. The potential advantage of deferring taxable income includes a greater overall payout than would otherwise be achieved with a single lump sum payout. It also helps to avoid a higher tax bracket, preserves the ability to take deductions that might be lost at a higher income level, and avoids the Alternative Minimal Tax (AMT).

What is the assignment process for a non-qualified assignment?

The assignment process for a non-qualified assignment is very similar to that for a qualified assignment. Once all parties agree on a periodic payment plan in the settlement agreement, the defendant or insurer assigns its obligations to a non-qualified assignments company responsible for executing the agreement.

The company then funds the payment obligation by purchasing an annuity contract issued to the assignment company, which is the owner. The company issuing the annuity contract will also issue a notice of financial commitment to the payee and will begin making payments according to the terms of the payment assignment.

Interested in hearing more about this topic?  We have a great episode on the Ringler Radio Podcast about this topic here:  Structured Settlements and Non-Qualified Assignments

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The Top 5 Reasons to Consider a Structured Settlement

Lump sum vs. structured settlement: what’s the better choice, qualified vs. non-qualified assignments: what do they mean for settlement proceeds.

Structured Annuities: How They Work

If a claimant decides to utilize a structured settlement, the defendant (or insurance company) “assigns” its obligation to pay to a third-party assignment company. The assignment company then uses the settlement proceeds to purchase a structured settlement annuity that provides regular payments to the claimant based on a schedule previously chosen by the claimant.

When an attorney chooses a fixed annuity as the financial vehicle for their attorney fee deferral , the process is essentially the same: the defendant or insurance company directs the fees to an assignment company, which then uses the funds to purchase an annuity. The attorney receives the annuity payments on a pre-determined schedule.

Qualified Assignments

A “qualified assignment” simply means one that qualifies for income tax exclusion based on the criteria defined in Internal Revenue Code §§104(a)(2) and 130. Settlement proceeds from personal injury, wrongful death, and workers’ compensation cases all fall under this designation. Not only are the settlement proceeds income-tax free, but if placed in a structured settlement annuity, the growth on the proceeds is also income tax-free.

Non-Qualified Assignments

A “non-qualified” assignment is—you guessed it—one that does not qualify for income tax exclusion. However, certain types of non-injury settlements do still have the option for tax-favored treatment . If placed in a structured annuity, taxes are only due on the proceeds as they are received. Rather than getting hit with a large tax bill for a cash lump sum payment, the tax obligation can be spread out over time.

A non-qualified assignment can be used for attorney fee deferrals and for a multitude of legal settlements, including: age discrimination, Americans with Disabilities Act, athletes’ endorsement fees, celebrity endorsement fees, construction defects, divestment, divorce settlements, environmental settlements, legal fee disputes, legal malpractice/professional errors and omissions, race discrimination, sexual harassment, structured sales, and wrongful termination.

Contact Traci Kaas to learn more about your options        

To learn more about financial options for injury and non-injury settlements, contact the experienced team at Traci Kaas today. We can be reached at [email protected] or 800-354-2258.

Related posts

How to reap long-term financial benefits in a taxable damages case: the latest options for settlements outside of the realm of physical injury, physical sickness, or wrongful death, vote for tsaw as california’s #1 structured settlement provider.

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• Sales Questions and Answers

How do I create a lead processing activity to run the lead assignment process?

Here's an example of how to create a lead processing activity to run the lead assignment process. It describes how to run the process to assign imported leads to the inside sales representatives for lead qualification. It also outlines how to assign qualified leads to field sales for conversion to opportunities.

Follow these steps to create a lead processing activity to run the lead assignment process:

Search for and open the task Manage Lead Processing Activities from the Setup and Maintenance work area.

The Lead Processing Activities page appears. This page lists all of your processing activities.

Click Create Lead Processing Activity .

The Create Lead Processing Activity window appears.

To assign the leads you previously imported to inside sales for qualification, enter the parameters listed in this table.

Click Submit .

Next, create and submit a second activity to assign the leads to field sales after the leads are qualified. Enter the parameters listed in this table.

You can monitor the processes on the Manage Lead Processing Activities page. This page lists all of your processing activities.

Depending on your settings, your process runs immediately or at the intervals you specified. You can monitor its progress by searching for the job set process by name on the Overview page.

You can also set up the process to run regularly per your business requirements as follows:

Click Advanced .

Click the Schedule tab.

Select the Using a schedule option.

Select the frequency and start date.

Enter an end date far in the future.