by John Darer CLU ChFC MSSC RSP CLTC
Robert Wood, Esq. San Francisco tax attorney, author of treatise on Qualified Settlement Funds and Section 468B made these important points about Single Claimant Qualified Settlement Funds June 23, 2014:
- QSFs may sometimes be used inappropriately to defer receipt of monies for protracted periods
- It seems more likely that the IRS would establish some sort of anti abuse rule addressing the inappropriate use of QSFs to defer income.
- To be cautious one should try to establish QSFs where there are multiple claimants
Notwithstanding the transaction risk of structured settlement derivatives, it seems clear that if you use a single claimant qualified settlement fund to invest in structured settlement derivatives for a minor (or incapacitated person) paying out over an extended period of years, you do so at your peril.
While Wood opines in the 2014 article that what action the IRS would take, if it does, would be likely not be retroactive, that may not be enough to be prudent in the eyes of decision makers like judges and guardians ad litem who are charged with protecting the most vulnerable.
Structured Settlement Derivatives/structured settlement payment rights are marketed to investors by promoters of these assigned contracts, including some settlement planners, in a wholly misleading way by calling them secondary market annuities when they are not annuities.