Understanding the Transaction
In order to have a tax-free structured settlement in a personal injury settlement, a release with the required language for a structured settlement must be executed, a uniform qualified assignment must be executed and the structured settlement annuity must be funded by the defendant with a check made payable to the assignment company. The premium which goes from the defendant to the assignment company is used to purchase the qualified funding asset (the annuity contract) from the annuity issuer. The assignment company is the obligor (owes the payments to the injury victim) and the annuity issuer (the life insurance company) guarantees the payments. The release must set forth the obligation of the defendant to make the future periodic payments and then that obligation is assigned to the assignment company relieving the defendant of any future liability or obligation. The qualified assignment is the document that transfers the future periodic payment obligation from the defendant to the assignment company and is a required document in the transaction.