Frequently Asked Questions

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A structured settlement is an agreement to resolve a claim where the plaintiff receives part or all of a settlement recovery in the form of future periodic payments, rather than as a lump sum. The periodic payments are excluded from income tax under IRC 104(a) if the claim involves a personal physical injury.

Although there are different tax consequences, the concept of receiving future periodic payments in lieu of immediate cash can also be utilized by attorneys for their contingency fee, sellers of a business/real property for their sales proceeds, and plaintiffs with a non-physical injury settlement such as employment litigation and contract disputes.

• 100% INCOME-TAX-FREE FOR PHYSICAL INJURY AND WRONGFUL DEATH CASES: Payments (including the growth over time) for physical injury and wrongful death cases are free from state and federal income tax under Section 104(a) of the Internal Revenue Code.

• 100% INCOME TAX-DEFERRED FOR NON-PHYSICAL INJURY CASES: Payments (including the growth over time) for non-physical injury cases are tax-deferred.

• GUARANTEED PAYMENTS: The parties agree to the payment schedule at the beginning of the transaction. For fixed annuities, that will provide predetermined amounts not subject to change.  For index-linked options, that will provide a predetermined minimum payment subject to increase based upon the contract's terms and index performance.

• GUARANTEED RATE OF RETURN: Structured settlement payments have a locked-in rate of return when utilizing a fixed annuity. That protects injured claimants against market volatility.

• NO OVERHEAD FEES OR EXPENSES: Structured settlements have preferential tax treatment and no overhead fees (Please note: the fee reference is for annuities only). Those advantages allow them to remain competitive with traditional investments.

The decision to structure some or all of the settlement must be memorialized in the settlement agreement with either the defendant/insurer or Qualified Settlement Fund (QSF).  The future periodic payments are outlined along with other important terms, such as the recipient of the payments (person or trust), and the initial beneficiary designation.

The defendant/insurer/QSF then pays the amount being structured to a third-party assignment company, which assumes liability for the periodic payments through an assignment and purchases a funding asset (typically an annuity). 

The periodic payments are made in accordance with the terms set forth in both the settlement agreement and assignment agreement.

A Qualified Settlement Fund (QSF), also referred to as a 468B Trust, is an exceptionally useful settlement tool that allows time to properly resolve one or more claims.  When a QSF is created and funded, the defendant makes a payment into the trust account in exchange for a full release.

In addition to the release of liability, the defendant is eligible to receive an immediate tax deduction for the payment. A claimant gains the time they need to aggressively pursue reductions in liens on their lawsuit without the time pressure of litigation, and also receive a proper settlement consultation to determine their best settlement options.  The use of a QSF provides a claimant access to solutions that some insurance companies prevent you from utilizing.  These solutions can provide higher growth potential and/or guarantees.  (A QSF may also prevent you from utilizing some life companies due to their program's guidelines for QSF acceptance.)

Citation for Federal Regulation regarding QSF's:  https://www.law.cornell.edu/cfr/text/26/1.468B-1

Yes!  Every situation is unique, but we generally recommend taking upfront cash to payoff your high-interest debt, increase your checking account balance to two months of expenses, and create an emergency fund of three months of expenses in a separate savings account (also achieved through liquidity options in settlement plan).  If you are working with a settlement consultant who advises you to structure your entire net recovery, RUN!!!

There are no out-of-pocket expenses for you to use our company.  Should you elect to move forward with a product or service proposed by us, Bua Settlements will coordinate that process and is compensated directly by the provider.

If the payments were tax-free to you, they will remain state and federal income tax-free for your beneficiaries.  However, there may be estate tax considerations that you should consult with your estate planner and tax advisors on.

Yes, it is.  No part of a structured settlement payment is interest.  A structured settlement is simply periodic payments as contemplated under IRC Section 104(a)(2) and agreed to as part of the settlement.  As the plaintiff, you do not own the annuity that is funding the periodic payments, so any so-called "interest" from the initial funding amount is not yours, but is instead the annuity owner's (typically the annuity provider's affiliate assignment company).  You are simply receiving a future payment as a result of your personal physical injury.  If you do not agree with this analysis, you could always just consider a market-based structured settlement where any growth is undetermined by an interest rate but instead tied to an equity-market index.   

The index is simply the measuring stick for how your annuity's growth will be determined.  Your money, known as premium, is not invested directly in the index.  In fact, your premium is largely invested in the same way the insurance company invests its assets for their non-indexed offerings.  For a small portion of the annuity premium, the insurance company uses a third-party (usually a large financial institution) to hedge the performance of the index.  If the index is designed for low volatility, the expense to hedge this performance is rather low.  Conversely, if the index is volatile like the S&P 500, the expense to hedge is rather high.  Therefore with higher volatility indexes, you will see caps on what can be credited, lower participation rates, and both of those can change from year-to-year depending on the market environment.  With low volatility indexes, you can expect to have high caps or no caps at all, high participation rates, and longer commitments to those terms.  If your participation rate is over 100%, it is a function of the low hedging expense and yields provided by the insurance company's investments with your premium.

No, a defendant is "off the hook".  If there is a properly executed qualified assignment and the claim's settlement agreement releases the original obligor from any and all liability for future periodic payments, then there would be no obligation to cover the shortfall.  Please see Yerkes v. Cessna Aircraft Co., Dist. Court, D. New Jersey 2015.  Please note that there are some states that require a defendant to remain on the hook for workers' compensation claims under IRC 104(a)(1), and in the instance of a structured installment sale, the buyer has to remain contingently liable for the future installment payments if the annuity company is unable to make them.