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Section 130 Exempt

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Where did Section 130 come from?

Originally, the insurance industry wanted to save money on claims settlement by using the time value of money and the magic of compound interest to make a little money in the present look like a lot of money in the future. The defendant or its liability carrier did not, however, wish to remain liable to make the payments in the event that the annuity carrier failed. A major financial institution in the structured settlement industry wanted to accept assignments of the liability to make said payments to the plaintiffs. They realized that receipt of the money to buy a funding asset or receipt of the funding asset itself would result in taxable income to the assignee. A tax attorney and Washington lobbyist were retained to draft and ensure the passage of an Act of Congress creating a new tax law to protect themselves against having to recognize the value of the funding asset as taxable ordinary income upon receipt. Neither the plaintiff's bar nor any injured parties were ever consulted!

"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."

What are the benefits from Section 130 and to whom do they inure?

Benefits to defendant/liability carrier: (1) The defendant or its liability carrier may take an immediate 100% income tax deduction (Section 461(h)). (2) The defendant or its liability carrier have no further liability or responsibility for the periodic payments.

Benefit to assignee (usually an insurance company or affiliate thereof): The assignee can accept the assignment of part of the plaintiff's recovery without having to pay any income tax on it.

Benefit to plaintiff: None
 

What restrictions or limitations are imposed by Section 130 and to whom do they apply?

Restrictions/limitations on the defendant/liability carrier: None

Restrictions/limitations on the assignee: The purchase of the qualified funding asset must occur within sixty days of the actual assignment.

"such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment."

Restrictions/limitations on the plaintiff: Section 130 limits financial instruments that can be used as investments for the plaintiff's recovery to rigid fixed income obligations:

"For purposes of this section, the term "qualified funding asset" means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States".

Section 130 also deprives the plaintiff of any flexibility to accommodate future emergencies, changes in lifestyle or changes in future economic conditions:

"such periodic payments are fixed and determinable as to amount and time of payment,"

"such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments"

Do these restrictions exist in any other section of the Internal Revenue Code? Absolutely not!

Does Section 130 require that the plaintiff and defendant are in agreement concerning the structured settlement? No!

If not, how else could it be implemented? Section 468(b) of the Internal Revenue Code of 1986 (as amended) provides, by regulation, for the creation of a "Qualified Settlement Fund" that can be used to allow for the release of a defendant in exchange for payment of an agreed upon sum of cash. Revenue Procedure 93-34 provides that said 468(b) "Qualified Settlement Fund" qualifies under Section 130 as an "Assignor" being a "party to the suit or agreement."

How does a Section 130 Structured Settlement operate?

1. In a Section 130 structured settlement, the plaintiff gives the defendant a release in exchange for immediate cash plus the promise of future periodic payments.
2. The defendant (or the liability insurance carrier) assigns the responsibility to make the future periodic payments to an assignee. It also sends premium dollars to the assignee.
3. The assignee corporation sends premium dollars to the life insurance company that issues an annuity that is owned by the assignee. The annuity then makes the periodic payments to the plaintiff that are required by the settlement agreement and release or court order.
4. The life insurance company sends the money (which represents the annuity policy reserve) to a variety of investments. The profits from investing the plaintiff 's money then return to the life insurance company, not the plaintiff. When the plaintiff dies, the remainder of the plaintiff’s cash (which is now called a reserve) also becomes the undisputed property of the life insurance company instead of the plaintiff’s estate or heirs!

How does The Halpern Group's Section 130 EXEMPT Structured Settlement operate?

1. In The Halpern Group's Section 130 exempt structured settlements, the plaintiff releases the defendant for cash.
2. The plaintiff assigns the desired amount of funding principal to a structured settlement trust in exchange for the desired future periodic payments, profits, and asset growth.
3. The structured settlement trust places the plaintiff’s money in appropriate investments managed by a patent pending computer program known as The Proportionally Reactive Investment Management System (PRIMS) for enhanced safety and growth. The profits and growth from which now benefit the plaintiff and not the insurance company!
4. At the termination of the structured settlement (whether by the death of the plaintiff or the end of a period certain) 100% of all remaining assets (reserves) are paid to the plaintiff or the plaintiff’s estate instead of becoming the property of the insurance company!

Why would anyone prefer to live with the constraints and limitations of a Section 130 structured settlement?

Now that's a question we can't answer!