IRC 468B and 5891

Both IRC 468B and 5891 challenge and change the traditional structured settlement claim management model.

To improve and grow structured settlements as part of the emerging settlement planning model, industry leaders must refocus their strategic analysis beyond defense of IRC 130 and 104(a)(2) with more positive and proactive thinking about IRC 468B and 5891.

This strategic re-focus should:

• Re-prioritize 468B and 5891 as critical for industry growth.
• Re-analyze 468B and 5891 utilizing perspectives and knowledge experts from outside the traditional "structured settlement box".
• Re-set educational targets, priorities, objectives, content and methodologies for 468B and 5891.
• Study how to market structured settlements to settlement planning stakeholders and decision makers by featuring 468B and 5891.
• Develop a settlement planning legal and business framework protecting structured settlements and incorporating 468B and 5891.
• Build a settlement planning lobbying coalition and strategy to grow structured settlements with 468B and 5891.

IRC 468B

• As Robert Wood states in his new 468B legal treatise: the benefits of a QSF "seem to be of staggering proportions" and "QSFs are definitely not tax shelters".
• Wood asks: "how could [anyone] not do handstands over a simple trust that essentially abrogates the fundamental tax concepts of constructive receipt and economic benefit"?
• No one disputes that QSFs can be used to implement qualified assignments and annuity-funded structured settlements.
• The 468B dispute is whether "one or more" means "one or more" - without any existing tax rulings or case law that deny or contradict the obvious meaning.
• Instead of doing handstands over QSFs, traditional claim management structured settlement stakeholders have spent hundreds of thousands of dollars to preserve a stagnant business model.
• Instead of QSFs serving as a platform for growth, the structured settlement industry collectively has created 468B confusion and conflict where otherwise none exists.
• Structured settlement transition and growth should be predicated upon QSFs and structured settlements becoming a standard and integrated claim resolution model.

IRC 5891

• IRC 5891(c)(1) defines "structured settlement" for tax purposes. It references and incorporates IRC 130, 104(a)(1) and (a)(2).
• When QSFs implement structured settlements, the funding must satisfy 5891's "structured settlement" definition.
• IRC 5891 also provides definitions, rules and penalties for a state-run system to review and approve post-settlement transfers of structured settlement payment rights.
• 46 states have enacted structured settlement protection statutes which generally adhere to the Model State Structured Settlement Protection Act.
• With few exceptions, the state protection statutes currently do not apply to the primary market.
• Just as 468B challenges and changes the traditional structured settlement model, so also does 5891 and the state protection statutes.
• Unlike the 468B structured settlement dispute, however, the 5891 dispute does not yet match competing statutory interpretations or divide plaintiff and defense consultants.
• The 5891 dispute exists because the secondary market fundamentally and permanently changes traditional structured settlements.
• Settlement transfers directly attack traditional industry credo: i.e. structured settlements provide permanent solutions and protection for injury victims.
• Instead of proactively adjusting to legislative and business changes, however, the primary structured settlement participants (plaintiffs and defendants) have abandoned their own customers (injury victims) and their own products to the factoring companies.
• Instead of offering alternatives solutions, the primary market's response has featured a public relations campaign highlighting secondary market abuses.
• For the structured settlement market to transition and grow, the primary market needs a more proactive and constructive secondary market strategy.

Court Approval and Protection Statutes

• Court approval and state protection statutes represent two complementary foundations to improve and grow the structured settlement market.
• IRC 468B and 5891 both offer court approval features.
  • The government authority most often responsible for 468B QSFs is a court - although almost any federal or state authority may order and approve QSFs.
  • IRC 5891 requires a state court or responsible administrative agency to approve secondary market transfers.
  • If secondary market transfers require court approval to protect injury victims, why not protect injury victims when structured settlements originate?
  • In addition to other features and benefits, QSFs already provide a court approval process when structured settlements originate.
  • When judges approve QSF-generated structured settlements, why not apply applicable and existing requirements from state protection statutes such as "disclosure" and "best interest"?

Qualifications, Products and Services

• To transition successfully to the settlement planning model, structured settlement leaders must re-think traditional industry standards (qualifications; products; and services) and better address 468B and 5891.
• Questions:
  • What QSF qualifications and licensing should a judge and/or administrator require for structured settlement professionals?
  • Who else is part of the planning team?
  • What QSF products and services are needed beyond traditional structured settlements?
  • Who among the QSF advisers has responsibility for secondary market knowledge and post-settlement transfer services?