In addition to Macomber v. Travelers, one of the most important and controversial current legal issues impacting structured settlements involves single claimant 468B settlement funds. For a definition of 468B settlement funds, including designated settlement funds and qualified settlement funds, see “468B Settlement Funds - Definitions”.
The legal issue is whether a fund, account or trust that otherwise satisfies the requirements of section 468B(d)(2) for a designated settlement fund or IRC regulation 1.468B-1(a) for a qualified settlement fund fails to be a 468B settlement fund solely because the fund, account or trust holds monies that will ultimately be paid for the benefit of a single claimant pursuant to IRC section 130.
The related business issue is who should control structured settlements, plaintiffs or defendants and their liability insurers. Many liability insurers and some self-insured defendants currently operate "in house" structured settlement programs for the purpose of “re-capturing” claim dollars. These internal structured settlement programs generally involve partnerships with brokers and product providers, including commissions, which are not always disclosed to plaintiffs and their attorneys. To promote their own economic interests, these liability insurers and defendants frequently restrict a plaintiff’s structured settlement funding options to their “approved companies” and/or require commission payments to their “approved brokers”. Plaintiffs who refuse to cooperate may be forced to accept a cash settlement and denied a structured settlement including its tax benefits and spendthrift protection.
As one response, plaintiffs and their attorneys are increasingly petitioning courts to establish 468B settlement funds ex parte, meaning the opposing party does not have standing to object. When cash settlement proceeds are paid into a 468B settlement fund, the defendants and liability insurers are released and dismissed preventing them from controlling any aspect of the settlement funding. Whomever the plaintiff selects to oversee the 468B settlement fund is free to select whatever investment alternatives are appropriate to meet the plaintiff’s financial needs, which may or may not include a structured settlement. A separate settlement agreement between the 468B settlement fund and the plaintiff(s) is drafted which may include a structured settlement using an IRC section 130 qualified assignment.
Although this strategy is permissible for cases involving multiple plaintiffs, the language in the IRC 468B regulations and Rev Proc 93-34 is unclear as to whether 468B settlement funds can be used to arrange structured settlements in single claimant cases. Defendants and liability insurers argue to judges that structured settlements resulting from single claimant 468B settlement funds create an “economic benefit” resulting in immediate taxation to the plaintiff for the future periodic payments. Judges, as a result, are more reluctant to approve 468B settlement funds in single claimant cases.
In a June 19, 2003 letter on behalf of the Society of Settlement Planners (SSP), a non-profit trade association whose members are primarily plaintiff brokers, the law firm of Skadden, Arps, Slate, Meager & Flom requested public guidance from the US Department of Treasury on issues related to IRC Sections 130, 468B and single claimant cases. Treasury agreed to address the issues by including them within its 2003-2004 Guidance Plan which has been subsequently carried over to 2004-2005. In addition to technical tax arguments favoring single claimant 468B settlement funds, the SSP business arguments focus on the fairness and efficiency of allowing injury victims to select their own financial advisors, financial products and product providers without interference or coercion from defendants.
In response to SSP’s June 19, 2003 letter, the National Structured Settlement Trade Association (NSSTA), a non-profit trade association whose members include insurers and brokers who benefit from "in-house" programs, opposed the issuance of any such guidance. According to NSSTA’s President Mal Deener, “if the current approach to structured settlements – in which both sides participate in negotiating periodic payments matched to needs – is cast aside and the defense is unable to participate, the claims community will no longer have a stake in the process or in promoting the use of structured settlements.”
For additional information about structured settlements, see:
“Structured Settlement Definition”, “Introduction to Annuities” and “Advantages and Disadvantages of Annuities”.
For additional information about 468B Settlement Funds, see
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