by John Darer CLU ChFC CSSC
While there has been heavy advertising of qualified settlement funds ("QSF") as a means to resolve personal injury litigation, some may rely too heavily on them and for the wrong reasons. There has been much debate on the use of a qualified settlement fund ("QSF") to resolve a single claimant cases where a structured settlement is contemplated. There has been plenty of written material advocating the use of a qualified settlement fund ("QSF"). Under the right circumstances, it may be the only way to resolve a valid planning issue.**A Treasury Ruling has been pending since 2003. While the eventual guidance is not expected to be negative, the proper format to do them may be clarified. It's important to note that some qualified assignment companies will not participate in taking a qualified assignment on such cases.
The irony is that some structured settlement brokers and settlement planners representing plaintiffs suggest the use of a QSF simply to skirt around the approved list of annuity markets of the liability insurer, asserting that such use will give the plaintiff better market selection, yet end up limiting the choices for clients, because the list of markets willing to participate (in taking an assignment from the QSF***) will fall fart short of the full market survey promoted by these practitioners.
In a case I became aware of recently, a QSF was used and one of the markets now unavailable to the plaintiffs (as a result of the QSF) was in fact the most competitive! Even when the liability insurer has an approved annuity issuer list, more often then not the plaintiff's representative can survey the entire market and then get one of the approved markets to match. Some of the major liability insurers like Allstate and St. Paul have a very extensive annuity issuer list (generally AM Best rated A+ Superior, or better) so going for the extensive paperwork and cost layer of a QSF probably doesn't make sense if the use is for that reason alone. Good business practice dictates that homework should be done by the plaintiff's representative in advance and carefully documented.
** for example say you are an attorney with a asbestosis or mesothelioma claimant with settlement contributions coming from 30 different sources at various amounts (some even minuscule) at various different times over a period of time. The QSF is a useful tool to mitigate the burden and cost of administration. In the event a structure ends up being part of the solution a single structure can be created instead of numerous tiny ones, taking advantage of the economies of scale. Some annuity issuers charge a policy fee when the structured settlement annuity premium is below a certain size.
*** the ability to make a "qualified assignment" is important because the QSF (Rev. Proc. 93-34 so permits) will not likely be in existence for the duration of the payout period of the structured settlement.